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Discover CFO: No sign of 'cyclical turn' in credit quality

Although delinquencies and net charge-offs at credit card issuers have ticked up on a year-over-year basis, Discover Financial Services Executive Vice President and CFO R. Mark Graf is not seeing signs of a cyclical turn in credit quality among U.S. consumers.

Turns in credit quality are typically accompanied by declines in key macroeconomic indicators such as higher unemployment rates, rising home prices and spikes in initial jobless claims, Graf said during a presentation at the Deutsche Bank Global Financial Services Conference in New York. The U.S. unemployment rate in April declined to 4.4% from 4.5%, and the four-week moving average of initial jobless claims touched a 44-year low in the week ending May 20.

The Discover CFO said the company's delinquency incidence rate is essentially "dead flat" and is not presaging a credit cycle turn.

"We're not seeing any significant impact there," Graf said.

Graf expects Discover's total net charge-off rate in 2017 to rise anywhere between 25 and 45 basis points, reiterating expectations for a 35-basis-point increase on the year. During the first quarter, the rate, excluding purchased credit-impaired loans, rose to 2.69% for the three months ended March 31, up 48 basis points from the prior year's quarter. The company's recovery rates for near-term charge-offs are relatively stable, he added.