This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Discover Has Capital, But Mum on TARP

RIVERWOODS, Ill. ( TheStreet) -- Discover Financial Services (DFS - Get Report) appears to have more than enough capital to pay back the $1.2 billion in TARP funding it received from the U.S. Treasury, but analysts who follow the credit card issuer see no urgent need for it to do so.

"They've been very consistent in saying 'This is very attractive capital and we're not really in any rush to automatically just pay it back,'" says Henry Coffey, analyst with Sterne Agee.

Coffey estimated Discover's Tier One common equity ratio at 12% in a report published Monday, significantly higher than that of JPMorgan Chase (JPM - Get Report), which had just a 7.7% Tier One common equity ratio at the end of the third quarter, after it paid back the CPP funds it received. Bank of America (BAC - Get Report), which just issued more than $19 billion in equity to pay back TARP, has a roughly 8.25% Tier One common ratio.

Coffey upgraded Discover to a buy Monday, arguing loan losses will not be as bad as expected. His report also states Discover has "met all the requirements" for paying back the CPP funds under the TARP. His upgrade, accompanied by one from Bank of America Merrill Lynch, drove Discover's stock up 1.52% Monday even as all the major equity indexes fell.

For its part, Discover has little to say of the subject of TARP.

"Senior management will work with our board of directors to determine the right time to pay back TARP funds. Of course, as you know, repaying TARP funds is also subject to receiving prior regulatory approval," said a company spokeswoman via email.

JPMorgan and Goldman Sachs (GS) paid back their CPP funds at the first opportunity, and Bank of America's stock saw a big rally last week on news it would repay the CPP even as it issued more than $19 billion worth of new shares to accomplish the feat.

Citigroup (C - Get Report)'s relative slowness in paying back TARP has exposed it to criticism, though there is a healthy debate on the subject.

Discover, however, is not the political lightning rod the nation's largest banks have become, and so may have more in common with smaller banks, who say they are content to hang on to the Treasury's investment, both to guard against further weakness in the economy and for potential growth opportunities.

But credit card lending is not a very exciting growth business, due to punitive new legislation, according to Sterne Agee's Coffey.

"Congress has so badly scrambled the equation that you're not seeing a lot of expansion," he says.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AXP $64.09 0.27%
BAC $13.96 -0.64%
C $43.90 -0.75%
DFS $54.98 0.27%
JPM $61.31 0.11%


Chart of I:DJI
DOW 17,652.50 -8.21 -0.05%
S&P 500 2,046.39 -4.24 -0.21%
NASDAQ 4,700.2180 -16.8760 -0.36%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs