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Discover Financial Profit Falls on Slow Loan Growth

Discover Financial Services, a credit card company spun off from Morgan Stanleyat the end of June, said Tuesday that third-quarter profit fell, as expenses rose and outstanding loan growth was tepid.

The results beat expectations, but slow growth in loans worried investors already unsure about the outlook for consumer spending, and shares of the card issuer and payment network fell 3.4 percent.

Discover said profit for the quarter ended Aug. 31 was $202.2 million, or 42 cents a share, compared with $241.4 million a year earlier. Analysts on average expected earnings of 38 cents a share, according to Reuters Estimates.

On a non-diluted basis, which is the only basis for which information is available for the third quarter of 2006, Discover earned 42 cents a share, compared with 51 cents in the same quarter last year.

The company said it had $51.9 billion of loans either on its balance sheet or in securitization trusts at the end of the quarter, up 4 percent from last year.

That was slow for Discover, whose managed receivables typically grow in the high-single-digits, said Michael Kon, an analyst at Morningstar in Chicago.

Discover also declared its first quarterly dividend of 6 cents per share.

The company's shares fell more than 2 percent on the New York Stock Exchange on Tuesday.

Since being spun off from Morgan Stanley, Discover's shares have fallen 42.5 percent from their initial value of $28.50.

Over that same period, the Dow Jones U.S. Consumer Finance index has declined about 13 percent.

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