Discover says chargeoffs will rise to more than 7% this year

Discover Financial Services, the Riverwoods-based credit-card lender, said failed customer loans will climb beyond 7 percent in the second quarter.

The company, which added $521 million to the provision for bad loans in the fourth quarter of 2008, expects to add further to reserves in the first quarter of this year, Discover said today in an investor conference. The lender dropped 36 cents, or 4.6 percent, to $7.55 at 9:53 p.m. in New York Stock Exchange composite trading after falling 13 percent earlier.

Discover won approval to become a bank holding company last year, joining larger rival American Express Co. in a rush for government funds and retail deposits amid stalled capital markets. Credit-card lender losses are rising as unemployment pushed more people to fall behind on their debt. The U.S. lost almost 2.6 million jobs in 2008.

The rising losses for Discover are cushioned by settlement payments from MasterCard Inc. and Visa Inc. The company agreed in October to accept $2.75 billion to resolve an antitrust case it brought against the world's largest credit-card networks.

Discover expects $293 million after-tax in settlement proceeds each quarter of this year, the company said today.