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Discover Financial

DFS is a largely domestic credit card company operating a closed-loop business model in which it has the capacity to act as card issuer, payments network, and merchant acquirer. DFS remains primarily a spread lender with the bulk of revenue derived from interest income. DFS offers a range of products out of its direct bank franchise, including credit cards, private student loans, personal loans, and various deposit options. DFS' main focus is on the prime segment of the credit spectrum with particular emphasis on revolvers (i.e. carrying a monthly balance). DFS became a bank holding company (BHC) in early 2009 and is regulated by the Federal Reserve. DFS operates three networks: the Discover Network processes transactions for DFS-branded credit cards and provides payment transaction processing and settlement services; the PULSE network facilitates electronic fund transfers, providing access to ATMs and POS terminals for debit card transactions; Diners Club is a global network of licensees that issue and/or accept Diners Club cards. (07 Dec 2018)

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Discover: Moody's (Finally) Sees the Light

Worth Watching: 31 Oct 2018, 1:59 PM ET - Discover (Baa3/BBB-/BBB+) was upgraded one notch to Baa3 by Moody's (outlook stable), equalizing with S&P and Fitch, both of whom have maintained Discover at IG throughout its history while Moody's chopped to Ba1 at the height of the crisis (mid-2 ..

Discover 3Q18: Loss Rate Curve Continues to Flatten

Earnings Note: 25 Oct 2018, 11:50 PM ET - Discover had a good and on-brand 3Q18, with top line growth (+8%) matching loan book expansion and sustained improvement in asset quality as the pace of change in net loss rates decelerated for the fourth consecutive quarter.

US Strategy: What to Watch for on 3Q Earning Calls

Strategy Analysis: 11 Oct 2018, 4:37 AM ET - We surveyed our analyst teams for key sector level issues they will be paying close attention to with upcoming third quarter earnings calls beyond the typical sales, margins and earnings guidance. 

Specialty Finance: Barclays Conference Notes

Sector Analysis: 17 Sep 2018, 5:03 AM ET - We provide presentation write-ups for the slew of specialty finance companies represented at the Barclays 2018 Global Financial Services Conference this week; Ally, AmEx, CIT, Discover, iStar, and Navient.

Register Now: 2018 Global Financials Seminars

Announcement: 10 Sep 2018, 9:51 PM ET - Register for our upcoming fifth annual Global Financials Seminars.

Discover: Issues $900 mn of 10Y Notes out of OpCo

Worth Watching: 10 Sep 2018, 4:17 PM ET - Discover (Ba1/BBB-/BBB+) issued $900 mn of 10Y senior notes out of the Discover Bank entity (Baa3/BBB/BBB+) with proceeds earmarked for GCP. The notes priced at $99.85 to yield 173 bp over comparable Treasuries, coming in ~17 bp from IPT and at th ..

Interplay Between US Banks & Fed's Balance Sheet

Sector Analysis: 08 Aug 2018, 5:36 AM ET - In this note, we discuss the impacts of the Fed's balance sheet unwind on banks. We expect that U.S. banks will become the "natural buyers" of U.S. Treasuries not bought by the Fed, offsetting the impact on rates.

Discover Bank New Sub Debt, With a Twist

IG Note: 06 Aug 2018, 12:04 PM ET - DFS is in the market with $500 mn of 10NC5 OpCo sub debt, its first since 2010. The notes have an odd structure, a fixed-to-fixed coupon that resets at a spread (we estimate 195bp on IPT) over mid-swaps, so investors are taking on rate risk

DFS: President/COO Hochschild Taking Over as CEO

Worth Watching: 05 Aug 2018, 9:45 PM ET - DFS (Ba1/BBB-/BBB+) announced that current President/COO Roger Hochschild will succeed David Nelms as CEO effective October 1, 2018 and will maintain his current role as President. Both Hochschild and Nelms joined the company in 1998 and were appo ..

Discover 2Q18: Encouraging Delinquency Flows

Earnings Note: 26 Jul 2018, 10:49 PM ET - DFS turned in a good quarter with another 8% expansion in the top line; asset quality trends remain constructive as normalization runs through; delinquencies were particularly encouraging. Stay O/P, but now more on carry vs. regionals.

US Banks: Update to 2018 Debt Supply Forecast

Sector Analysis: 09 Jul 2018, 5:49 AM ET - Following a review of 1H18 debt supply, we are increasing our supply forecast for the full year for the banks in our coverage universe. The majority of the increase reflects increased expectations for OpCo debt from the GSIBs.

US Banks: 2018 CCAR - It's OK to Breach Limits?

Sector Analysis: 29 Jun 2018, 5:15 AM ET - The Fed released the 2018 CCAR results. It did not object to the capital plans of 34 of the 35 banks, the exception being DB USA, Deutsche Bank's IHC. The Fed did not force a number of banks that fell below the minimums to raise capital.

US Banks: 2018 DFAST Results - SCB Shocker Looming

Sector Analysis: 22 Jun 2018, 4:56 AM ET - Although all banks over $100 bn in assets received a clean bill of health in the 2018 DFAST, our main concern is that this year’s test could lead to a substantial increase in capital requirements under the proposed Stress Capital Buffer.

Specialty Finance: Conference Recap Notes

Sector Analysis: 14 Jun 2018, 5:41 AM ET - We recap recent presentations by several fincos at the Morgan Stanley Financials conference. The sense we got from card issuers (SYF, DFS) and auto lenders (ALLY) is that consumer credit performance should remain solid and stable in 2Q18.

U.S. Consumer Credit: 1Q18 Trends and Takeaways

Sector Analysis: 24 May 2018, 4:25 AM ET - We delve into the Fed's consumer credit data, analyzing 1Q18 trends across asset classes. We also dig in to recently released data on age distributions and one thing is clear: consumer credit has gotten grayer.

US Banks: Crapo De-reg. Bill Heads to White House

Sector Analysis: 23 May 2018, 10:27 PM ET - The House approved the Senate bill on financial (de)regulation, which is now headed to the White House to be signed into law. While the bill provides regulatory relief for regional/community banks, it has minimal impact on the big-6 banks.

Discover 1Q18: Credit Trending According to Plan

Earnings Note: 27 Apr 2018, 1:13 PM ET - Discover Financial reported solid 1Q18 results as revenue growth once again hit double-digits on the back of strong loan growth, particularly in the card book. Credit loss trends were positive, although delinquencies bear some monitoring. 

U.S. Consumer Credit: 4Q17 Trends and Takeaways

Sector Analysis: 21 Feb 2018, 3:36 PM ET - Consumer credit growth decelerated a bit in 4Q17 but remained among the strongest of the cycle as balances set new all-time highs in each quarter of 2017. We delve into the Fed's consumer credit data, analyzing trends across asset classes.

Discover: Issues $800 mn of 5Y OpCo Paper

Worth Watching: 31 Jan 2018, 8:53 PM ET - Discover (Ba1/BBB-) issued $800 mn of 5Y paper out of the OpCo (Discover Bank) that was earmarked for GCP, most likely to pre-fund the $750 mn of OpCo notes maturing on February 21. The notes priced at $99.991 to yield 82 bp over Treasuries, comin ..

Discover 4Q17: Loan Growth to Continue in 2018

Earnings Note: 25 Jan 2018, 9:41 PM ET - DFS kept on rolling in 4Q17, with double-digit revenue growth on the back of 9% loan growth; it is not slowing down in 2018 based on guidance for another 7-9% portfolio expansion, while asset quality is solid within cyclical context. 

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