Market Overview

Fitch Expects to Rate Discover Bank's Senior Notes 'BBB'

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings expects to rate Discover Bank's (a wholly owned subsidiary of Discover Financial Services, with a long-term Issuer Default Rating of 'BBB') senior unsecured notes 'BBB'. The notes are expected to mature in 2018. Issuance proceeds are expected to be used for general corporate purposes.

Fitch expects Discover to be an opportunistic issuer of bank notes over time, which will serve to enhance the company's funding flexibility.

KEY RATING DRIVERS

Discover's Stable Rating Outlook reflects the expectation for earnings consistency, moderate portfolio growth, peer-superior asset quality, and the maintenance of strong liquidity and risk-adjusted capitalization. While Discover will reduce capital ratios to its targeted range over time, Fitch expects the bank to do this in a prudent manner.

Increased revenue diversity, proven competitive positioning and credit performance in non-card loan categories over time, enhanced funding flexibility and/or further clarity on regulatory and legislative issues, particularly as it relates to the student loan sector, could support positive rating momentum.

Conversely, negative rating action could be driven by a decline in earnings performance, resulting from a decrease in market share or credit deterioration, a weakening liquidity profile, significant reductions in capitalization, and legislative and/or regulatory changes that alter the earnings prospects of the credit card and student loan businesses.

Negative rating momentum could also be driven by an inability of Discover to maintain its competitive position and earnings prospects in an increasingly digitized payment landscape. While the company is focused on strategic acquisitions and alliances to expand its online and mobile capabilities, competition from technology companies and social networks, with access to significant consumer data, is expected to intensify.

Discover is a leading credit card issuer and electronic payments company that authorizes, processes, and guarantees the settlement of cardholder transactions on the Discover, PULSE, and Diners Club networks, and extends credit on a revolving basis to Discover cardholders. The company had $61 billion in loan receivables at Nov. 30, 2012 and its stock is listed on the NYSE under the ticker symbol DFS.

Fitch expects to assign the following rating:

Discover Bank

-- Senior unsecured debt at 'BBB'.

Fitch currently rates Discover as follows:

Discover Financial Services

-- Long-term Issuer Default Rating (IDR) 'BBB';

-- Short-term IDR 'F2';

-- Viability Rating 'bbb';

-- Senior debt 'BBB';

-- Preferred stock 'B+'

-- Support '5'; and

-- Support Floor 'NF'.

Discover Bank

-- Long-term IDR 'BBB';

-- Short-term IDR 'F2';

-- Viability Rating 'bbb';

-- Short-term deposits 'F2';

-- Long-term deposits 'BBB+';

-- Subordinated debt 'BBB-';

-- Support '5'; and

-- Support Floor 'NF'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

-- 'Global Financial Institutions Rating Criteria', Aug. 15, 2012;

-- 'Finance and Leasing Companies Criteria', Dec. 11, 2012.

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Primary Analyst
Meghan Neenan, CFA, +1-212-908-9121
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Justin Fuller, CFA, +1-312-368-2057
Director
or
Committee Chairperson
Christopher Wolfe, +1-212-908-0771
Managing Director

 

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