Discover Financial's Credit Problems Get Personal

When Discover Financial Services (NYSE: DFS) reported its second-quarter results in late July, the stock price was once again hit over fears of credit risks and loan loss rates. Unfortunately, this refrain has become a common one for Discover shareholders this year.

It's easy to see where these credit concerns are coming from: In the second quarter, net principal charge-offs rose to $520 million, a 35% increase year over year. Charge-offs are loans that Discover has characterized as being unlikely for the company to ever receive. Provisions for loan losses rose even more to $640 million, a 55% increase year over year. This is money Discover has set aside for loan payments it has not yet collected. Making matters worse, the Federal Reserve's stress tests earlier this year revealed Discover might have more to lose compared to its credit-issuing peers in the face of a steep economic downturn.

Source: Fool.com