Discover Financial Services is to write
down up to $422 million of assets in its Goldfish credit card
business because of difficult conditions in the UK financial
markets. The US credit card business said the non-cash impairment
charge would be equal to “all or substantially all” of the goodwill
and other intangible assets of its Goldfish business.

David Nelms, CEO of Discover, said: “We have concluded that
continued disruption in the UK financial markets, higher interest
rates and our decision to reduce our loan exposure to the UK market
have negatively affected the book value of our Goldfish
business.”

Morgan Stanley, which spun off Discover earlier this year, acquired
Goldfish in February 2006 for $1.6 billion. Discover said efforts
to refocus the business had started to produce results, despite the
challenging business environment. Goldfish is part of Discover’s
international business, which made a £67 million ($137 million)
pre-tax loss in the third quarter.

Nelms added: “We will continue implementation of significant
actions to improve the performance of our UK business.”

Risk management pays off

Nelms said the company’s risk management had been paying off, and
charge-offs in the US card segment were expected to remain below 4
percent in the fourth quarter.

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Sanjay Sakhrani, an analyst at securities broker and investment
bank Keefe, Bruyette & Woods, told CI: “The company [Discover] believes its ability to significantly cut the losses in the
international Goldfish segment is very high given that within the
year-to-date loss (of roughly $173 million pre-tax) there are about
$45 million of one-time items on the negative side. Credit quality
has stabilised and expense reduction initiatives are under
way.

“Discover Financial Services also announced plans to write off
substantially all of the goodwill and intangibles related to its UK
credit card operations, which totals about $422 million. While this
was not a positive, we believe the impairment charge was not
unexpected given the recent under-performance of the UK card
business due to higher bankruptcy filings.”