Discover Financial Services on Wednesday reported a 68% drop in first-quarter profit, as the lender set aside more in rainy-day funds to cover for potential credit losses amid an uncertain economy.

US banks have increased their provisions for losses from bad loans as higher interest rates heighten the risk of default on mortgages and credit card debt by consumers.

Discover's provision for credit losses jumped to US$1.5 billion in the quarter ended March 31, from US$1.1 billion in the year-ago period.

During the reported quarter, Discover had agreed to be acquired by US consumer bank Capital One Financial in a US$35.3 billion all-stock deal, to create a global payments giant.

The deal, which is expected to receive intense anti-trust scrutiny, would form the sixth-largest US bank by assets and a US credit card behemoth that would compete with rivals JPMorgan Chase and Citigroup.

Discover's net income fell to US$308 million, or US$1.10 per share, in the January-to-March quarter, from US$968 million, or US$3.55 per share, a year earlier.

Its quarterly net interest income, the difference between what it makes on loans and pays out on deposits, however rose by 11.3%.

  - Reuters