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Discover Financial Services Reports Operating Results (10-K)

January 26, 2011 | About:

Discover Financial Services (NYSE:DFS) filed Annual Report for the period ended 2010-11-30.

Discover Fin Sv has a market cap of $11.14 billion; its shares were traded at around $20.45 with a P/E ratio of 16.7 and P/S ratio of 1.3. The dividend yield of Discover Fin Sv stocks is 0.4%.Hedge Fund Gurus that owns DFS: Larry Robbins of Glenview Capital, Bruce Kovner of Caxton Associates, Paul Tudor Jones of The Tudor Group, Steven Cohen of SAC Capital Advisors, Manning & Napier Advisors, Inc. Mutual Fund and Other Gurus that owns DFS: Steven Romick of FPA Crescent Fund, PRIMECAP Management, Columbia Wanger of Columbia Wanger Asset Management, First Pacific Advisors of First Pacific Advisors, LLC, HOTCHKIS & WILEY of Hotchkis & Wliey Capital Management LLC, Jeff Auxier of Auxier Focus Fund, Mario Gabelli of GAMCO Investors, David Dreman of Dreman Value Management, John Keeley of Keeley Fund Management, Diamond Hill Capital of Diamond Hill Capital Management Inc, Diamond Hill Capital of Diamond Hill Capital Management Inc, Jeremy Grantham of GMO LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

We offer credit cards, student loans, personal loans and deposit products through our Discover Bank subsidiary. Although we have historically offered both federal and private student loans, in 2010 we decided to sell all our remaining federal student loans. We had $48.8 billion in loan receivables and $20.6 billion in deposits issued through direct-to-consumer channels and affinity relationships at November 30, 2010. We operate the Discover Network, our credit card payments network; the PULSE network (PULSE), our automated teller machine (ATM), debit and electronic funds transfer network; and Diners Club International (Diners Club), our global payments network.

We recently expanded our private student loan business as part of our direct banking strategy. On December 31, 2010, we acquired The Student Loan Corporation (SLC) in a merger transaction for $600 million. We received a purchase price closing adjustment in the form of a cash payment of approximately $234 million from Citibank, N.A. (Citibank), the 80% owner of SLC before the merger, resulting in a net cash outlay of approximately $366 million for the acquisition of SLC. In the transaction, we acquired SLCs ongoing private student loan business and approximately $4.2 billion of private student loans and other assets, along with assuming approximately $3.4 billion of SLCs existing asset-backed securitization debt funding and other liabilities. We acquired the loans and other assets at an 8.5% discount, which will be applied to balance sheet items through purchase accounting entries. SLC is now a wholly-owned subsidiary of Discover Bank. The acquisition significantly increased the size of our private student loan portfolio, which was $1.0 billion at November 30, 2010. In addition, the acquisition has provided us with a developed student loan business platform, additional school relationships, experienced personnel and SLCs website.

Under our Cashback Bonus program, we provide our credit card customers with up to 1% Cashback Bonus, based upon their spending level and type of purchases. Customers earn 0.25% on their first $3,000 in annual purchases and 1% once their total annual purchases exceed $3,000. Purchases made at warehouse clubs and discount stores earn a fixed Cashback Bonus of 0.25%.

Customers who are not delinquent or otherwise disqualified may redeem their Cashback Bonus starting at $20 for partner gift cards that turn their Cashback Bonus into bigger rewards, brand-name merchandise with free shipping, Discover gift cards or a charitable donation to select charities. For customers who prefer cash, Cashback Bonus can be redeemed starting at $50 in the form of a statement credit or direct deposit to a bank account in increments of $50.

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