Yesterday, Discover Financial Services (DFS) announced that it expects to report a loss in the fiscal first quarter 2010 as the company had to boost its loan loss reserves.

The company will have $305 million pre-tax increase in loan loss reserves in the quarter. This would bring its reserve coverage to approximately a year of losses. As a result of this reserve addition, the company expects to report a first-quarter loss of 22 cents per share to 23 cents per share.

Additionally, the company estimates the net principal charge-off rate for its Direct Banking segment will increase to 8.5% from 8.4% in the fourth quarter of 2009. The company expects its over-30 day delinquency rate to be around 5%. This represents a 25 basis points reduction from the prior quarter level. Considering the current credit performance trends within its loan portfolio, Discover believes delinquent loan balances may have peaked in the last quarter of 2009.

Discover is scheduled to report its fiscal first quarter 2010 results after the close of trading on Mar 16, 2010.

Discover is a leading credit card issuer and an electronic payment services company in the United States. The company’s fiscal fourth quarter 2009 earnings of 12 cents were below the Zacks Consensus Estimate of 20 cents. The sluggish results were primarily attributable to declining yields due to the implementation of the CARD act, deteriorating credit quality and lower consumer spending.

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