Discover CEO sees U.S. card write-offs rising

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CHICAGO (Reuters) - U.S. credit card write-offs will continue to increase in 2009, tracking roughly with the rising unemployment rate, the top executive at Discover Financial Services said on Tuesday.

David Nelms, Discover's chief executive, said charge-offs could be in the mid-5 percent range in the fourth quarter and near 6 percent in the first quarter of 2009.

Credit card companies' delinquency rates have been rising in recent quarters as the U.S. economy has fallen into recession and unemployment has soared.

The charge-off rate at Discover, the fourth-largest U.S. credit-card network, was 4.76 percent in its fiscal third quarter.

Delinquencies "will tend to track with unemployment," Nelms told Reuters after a speech to the Executives Club of Chicago. "Most agree that things will tend to get worse next year."

The U.S. jobless rate was 6.5 percent in October and is forecast to have risen to 6.8 percent in November. Many economists see the rate peaking near 7.5 percent or higher in mid to late 2009.

In his speech, Nelms said Discover's charge-offs are "very favorable compared to the industry" as a whole, and below the "unacceptable" levels logged during the 2001 to 2003 economic slowdown and aftermath.

After that experience, Riverwoods, Illinois-based Discover implemented more rigorous analytics and tightened its credit criteria, he said.

For example, Nelms said Discover has the lowest concentration of card holders in areas especially hard hit by mortgage foreclosures, such as California and Florida.

Heading into the teeth of the holiday spending season, Nelms noted delinquencies creeping up the food chain of American consumers toward the wealthier.

Underemployment and a ratcheting down of lifestyle by more affluent consumers is a problem with "no easy fix," he said.

"Sales are holding up well, but it's some of the higher income people who are cutting back. It's the discretionary spending where there are cutbacks."

The recent collapse in gasoline prices would be "very helpful" in stabilizing consumer outlays, Nelms said.

Discover's shares were up 28 cents or 3 percent at $9.68 in midday trading on the New York Stock Exchange.

(Reporting by Ros Krasny; Editing by Leslie Adler)

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