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April 9,2009

  • News:  C C Industry Still Getting Crunched Away.

    It isn't over yet. Banks and credit card services continue to seek ways to cut expenses in an attempt to weather the financial crunch. Discover Financial Services is no exception. The Associated Press today reported that Discover announced its plan to cut an estimated 4% of their workforce. The decision affects approximately 500 jobs across all departments at the credit card company's Riverwoods, Illinois office located just outside of Chicago. Discover's David Nelms, Chairman and Chief Executive, made the announcement indicating the move was necessary to place the company in a stronger position. Discover offers a variety of credit cards including cash rewards, miles rewards, and student cards.

    Discover's struggles are not new. They have been experiencing rising credit card losses stemming from escalating numbers of customers defaulting on their monthly payments. Discover is not alone in this battle; as the unemployment rate reaches a high of 9.2% for April, and the economy continues to remain unstable, most financial organizations have encountered rising losses as well. In spite of these increased credit card losses, the company posted a profitable fiscal first quarter. Due in part to an anti-trust suit settlement with Visa and MasterCard where Discover alleged the two credit card magnets were violating antitrust law by placing illegal restraints on trade. The settlement with Visa and MasterCard awarded Discover $2.8 billion.

    Additional measures have contributed to Discover's efforts to remain afloat. They recently reduced their quarterly dividend from 6 cents to 2 cents a share which should deliver approximately $80 million a year. Discover also joined hundreds of other banks and lending companies in capitalizing on the government's bailout package. The March bailout rendered Discover a $1.2 billion investment from the Treasury Department. Discover, the 4th largest credit card network in the U.S., is traded on the NYSE and experienced a 10.4% decline today. Shares fell 88 cents, and closed at $7.57.

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