Discover Financial Services (DFS) to Offer $500M in Stock

Well that was exquisite timing by Discover Financial (DFS) - ironically this was one of the stronger stocks in my entire watch list yesterday. So were the other credit card companies actually - at $500M this offering is a 10% dilution to the current $5B market cap - the proceeds are to pay back part of the TARP; the stock was down 7% in after hours yesterday. To show how different of a market we have now versus a few months ago, if this had been done in April (with a lower stock price, and far greater dilution) high 5s would of gone off across the CNBC set and the stock would of been up 25% after hours. Ah, the good ole days when dilution actually caused your stock to rocket after hours as shorts ran for cover in total disarray.

• Discover Financial Services, the credit-card company that got $1.2 billion from the U.S., plans to sell $500 million of common stock to raise funds for its bank or to buy back some of the government stake. Discover accepted $1.2 billion in March from the Treasury’s Troubled Asset Relief Program, and Chief Executive Officer David Nelms said last month there’s no rush to repay.
• “They’re one of the better capitalized companies” among card issuers, said Michael Taiano, analyst at Sandler O’Neill & Partners, who has with a “hold” rating on Discover. “I don’t know if it made sense for them to hold onto that capital.”
• Repaying the government would give Discover flexibility to repurchase shares in the future, Taiano said. The preferred stake pays 5 percent dividends for the first five years, and 9 percent after.
• The company also said it "intends to offer senior notes in the near future, subject to market conditions." Raising debt without government assistance is another requirement companies wishing to repay TARP must complete, per Treasury Department guidelines.

We definitely want to see it hold that magic green line

[Jul 2, 2009: Beginning Discover Financial Stake]

Long Discover Financial in fund; no personal position