The Direct Banking segment of Discover Financial Services, Discover Network has struck a multi-year deal with First National Bank, Omaha, wherein credit cards will be issued to Discover Network from the following year. The clients will have various options in choosing a payment mode and will have opportunities with regard to agent bank, additional direct, as well as co-brand issuing.
Discover Financial Services is a credit card issuing company which is based in Riverwoods, Illinois, United States. It is also an electronic payment facility and offers various products such as student loans, personal loans, credit cards, as well as deposit certificates etc. During March of the year 2009, Discover became a bank holding company (under the Bank Holding Company Act of 1956) and a financial holding company (under Gramm-Leach-Bliley Act) due to the fact that it participated in the U.S. Treasury's program also known as the Capital Purchase Program.
Discover has grown since its inception in 1986 to become one of U.S's largest card issuers with innovative measures and changes that were brought about in the credit card industry. The credit card volumes grew by around 5% each year with respect to merchant acceptance and higher spending by the customers.
During the third quarter, the company posted solid results as there was a significant increase in credit card usage and a drop in default rates. Business volumes had increased with an improvement in credit quality and there were sufficient gains from the payments received. Delinquency rates, net charge offs, loan loss provisions etc., had shown some improvement thus reflecting the credit trends overall. However, the growth was a bit stunted due to the expenses that were much higher than expected.
The fourth quarter estimate by Zacks Consensus Estimate is 36 cents per share for the year 2010 while the estimates for the whole of 2010 and 2011 the estimates are at around 93 cents per share and $1.74 per share respectively.
The Student Loan Corp. acquisition is a strategic move to enhance the student loan portfolio which already has a strong hold. The company's sound capital position, extensive network, and cost containment strategies have been worked out. The acquisition is also due to the company's long-term plans to give a boost to its private student loan portfolio which has shown a steady growth over the past 3 years, while many other players had to discontinue. This reinforces the fact that Discover has competitive strength in the market. There is also an indication of upward movement with regard to the shares in the next term.