Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from David Hochstim - Buckingham Research.
David Hochstim - Buckingham Research
Could you explain what was going on with the sequential decline in PULSE network transactions? Also how much of the decline in Discover spending volume was related to lower gas prices? Roy mentioned it was a combination of retail sales and gas.
David W. Nelms
To answer your second question first, Roy mentioned that in November we actually saw a 6% sales decline after flat sales for the first two months of the quarter. Actually over half of that 6% decline was the impact of lower gas prices so while that’s a negative to sales, I view that as really a good positive for our consumers, our customers and therefore for us.
In terms of PULSE I would not overly read things into the 9% year-over-year growth. I’m very pleased with the 23% growth that we achieved full year including the fourth quarter. I think that means we gained some nice share during the year. There were some anomalies in this particular quarter that I can’t really go into but we fully expect to return to the double-digit growth in the first quarter. Not to the levels that we had been achieving because obviously debit purchasing is also being affected in this economy as well as credit, but we expect it to be higher year-over-year growth than we saw in the fourth quarter.
David Hochstim - Buckingham Research
In terms of the reserving is it reasonable to think that reserves will build with the higher expected level of charge-offs? This quarter they went up to roughly the level of charge-offs. Should we expect them to be over 6% at the end of the first quarter?
Roy A. Guthrie
Charge-offs are sort of a trailing measure and I’ve suggested that we should pay a little bit more attention to the broadest measure of the impairment which we publish, which is our 30-day balances past due number. That’s probably your best measure as to how you will see reserves move forward. As you’ve seen over the last four quarters we’ve advanced our reserve rates faster than delinquency has risen and that’s a little bit of a reflection of something that we’ve talked about often here and that is the higher velocity of accounts through the stages of delinquency.
I would take the combination of this velocity phenomena you’ve seen in reserving over the last four quarters and the expectations for delinquency to guide reserves.
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