January 21, 2015 / 10:25 PM / in 3 years

UPDATE 1-Discover Financial profit falls 33 pct on higher loan reserves

(Adds details on results, shares)

Jan 21 (Reuters) - Credit card issuer Discover Financial Services Inc reported a 33 percent drop in quarterly profit as it set aside more money to cover bad loans.

The company’s shares fell 3.6 percent to $58.65 in extended trading.

Discover set aside $457 million to cover bad loans in the fourth quarter ended Dec. 31, up 29 percent from a year earlier.

The company said costs also increased 10 percent due to increased marketing spend, technology investments, employee compensation and goodwill impairment.

Discover’s net income allocated to shareholders fell to $392 million, or 87 cents per share, from $588 million, or $1.23 per share, a year earlier.

The results include charges of about $226 million, included $178 million to simplify the company’s cash-back rewards program.

Discover’s revenue, net of interest expense, fell 4.3 percent to $2.04 billion.

Analysts on average had expected revenue of $2.20 billion, according to Thomson Reuters I/B/E/S.

The company’s larger rival American Express Co reported a 10.7 percent rise in quarterly profit as customers in the United States spent more using its cards.

Both companies issues their own cards and lend directly to consumers, but Discover’s business is less than half of AmEx’s.

Discover’s shares closed at $60.84 on the New York Stock Exchange on Wednesday. (Reporting By Sudarshan Varadhan in Bengaluru; Editing by Simon Jennings and Savio D’Souza)

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