Discover Financial (DFS) to Repay $1.2B in TARP Funds; Reports Q1 Loss on Higher Reserves

Discover Financial Services (NYSE: DFS) on Tuesday announced that it has received regulatory approval to redeem the $1.2 billion of preferred stock that the company issued to the U.S. Treasury under the Troubled Asset Relief Program.

The sixth-largest U.S. credit card issuer said that it will offer $350 million in subordinated debt during the second quarter prior to the redemption. Discover will avoid paying the government dividends on its TARP stake of 5 percent by paying back the bailout funds received.

Also after the close today, Discover reported a fiscal first-quarter loss of $103.5 million or 22 cents per share, compared to a profit of $120.4 million or 25 cents per share in the same quarter last year. Charge-offs climbed to 8.51 percent in the first quarter from 8.43 percent in the previous quarter.

"Discover's performance this quarter reflects the emergence of a more favorable economic environment, as our Discover card sales volume has now shown four consecutive months of year-over-year growth and delinquency levels have declined," said David Nelms, chairman and CEO of Discover.

The loss for the company was impacted by a pre-tax addition of about $305 million to its reserves from a new analytical process that the company is implementing to estimate incurred losses on non-delinquent debt.

"Our reserve addition this quarter is consistent with our conservative balance sheet management approach," Nelms added.

Shares of Discover are down almost a percent in the after-hours session. The stock last traded at $15.15.

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