Credit card company Discover Financial Services is applying to become a bank holding company for eligibility for some of the $700 billion in government aid money via the Treasury's Troubled Asset Relief Plan. In response to the news, investors pushed the stock up nearly 14% in midday trading.
Continue reading below
The move would alleviate the difficulty the credit card company has had on borrowing money as well as offset loses from credit card borrowers, who have fallen behind in payment as unemployment rises. Discover's charge-off rate, a measure of bad debt write-offs, rose to 5.48% in its fourth fiscal quarter from 3.85% a year earlier.
If the move is approved, Discover will join American Express Co. as another credit card company that has applied for status as a bank holding company. The bank holding status will give Discover more financial flexibility in terms of access to TARP money. A Dec. 9 Standard & Poor's report stated that the Riverhead, Ill.-based company is now funding its lending from its bank deposits because investors are leery of acquiring credit card securitization packages as a result of the mortgage meltdown fear. -
Gerald Magpily
See Bloomberg article See TheStreet.com articleSee Reuters article
