TEXT - Fitch expects to rate Discover Financial Services notes 'BBB"

Tue Nov 6, 2012 4:28pm EST

Nov 6 - Fitch Ratings expects to rate Discover Financial Service's
 (Discover) $500 million of senior unsecured notes 'BBB'. The notes will
be issued in association with a debt exchange for a like amount of Discover 
Bank's 8.70% subordinated debt maturing in 2019. The new notes will have a 
coupon of 3.85% and will mature in November 2022.

Fitch does not consider the transaction to be a coercive debt exchange. Instead,
Fitch believes the issuance is an attempt to improve funding costs in the 
attractive capital markets environment and rationalize the bank's capital 
position under new Basel III guidelines.    

RATING DRIVERS AND SENSITIVITES

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, a 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 $59.2 billion in loan 
receivables at Aug. 31, 2012 and its stock is listed on the NYSE under the 
ticker symbol DFS.

Fitch expects to assign the following rating:

Discover Financial Services
--Senior Unsecured Debt 'BBB'.

Existing ratings for Discover are 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.
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