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Dive Brief:
- The board of card issuer Discover Financial Services expects to identify the company’s next CEO “in the coming months,” interim CEO John Owen said Thursday.
- “The board is considering several excellent candidates, both internal and external,” Owen said during the company’s third-quarter earnings conference call with analysts.
- Asked by an analyst about the possibility of the company selling its student loan business or any other units, Owen declined to speculate. He said the company evaluates all of its businesses as part of its annual strategic planning process, which is currently underway. Bloomberg reported last month the company was considering selling its student loan business.
Dive Insight:
Grappling with a host of compliance issues in recent months, Discover is “acting with urgency” to find its next CEO, Owen said in August. Former CEO Roger Hochschild resigned abruptly that month and the company has since added a former regulator to its board as it works to bolster risk management efforts.
Discover has engaged with its merchant partners regarding a card misclassification issue disclosed in July, and continues to communicate with regulators about it, Owen said Thursday. “The resolution of this issue is likely to be complex, and we anticipate it will take several quarters to fully resolve,” Owen said.
John Owen
Permission granted by Discover Financial Services
Beginning in 2007, the Riverwoods, Illinois-based card company misclassified certain credit card accounts into its highest merchant and merchant acquirer price tier. The issue “underscored deficiencies” in the company’s corporate governance and risk management, Hochschild said earlier this year.
In September, CFO John Greene said the company had shared with regulators the findings of an internal investigation into that pricing issue.
Separately, Discover and the Federal Deposit Insurance Corp. reached a consent agreement in late September, related to “shortcomings” in Discover’s bank compliance management system for consumer protection laws.
“Consistent with the terms of this consent order, we have made meaningful investments in improving our corporate governance and enterprise risk management capabilities, and expect to drive further enhancements across the organization in the coming quarters,” Owen said Thursday.
The company’s third-quarter operating expenses rose 6%, year over year, to $1.5 billion, Greene noted. That was largely due to spending increases on risk management and compliance as Discover has sought to step up its efforts in that area.
The company is on track to more than double that spending this year compared to last year. Discover is spending about $460 million on compliance and risk management this year, up from the $225 million it spent on that category last year, Owen said.
For the third quarter, Discover’s revenue, net of interest expense, jumped 17%, to $4 billion, but net income dropped 33%, to $683 million for the quarter, according to its earnings release. The company increased its reserves to cover loan losses, with provision for credit losses reaching $1.7 billion in the quarter.
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