Dow Jones Newswires | Discover Financial Services said its
earnings in the second quarter would be reduced by 13 cents a share, as
the company repaid $1.2 billion it got last year from the U.S. Treasury
Department’s Troubled Asset Relief Program.

This reduction stems from an $11.2 million dividend to the Treasury, and a $63 million acceleration of the discount of the preferred stock that the company issued to the Treasury in exchange for the federal funds it got last year. At the time, the discount reflected “the value of the warrant to purchase common stock of the company issued to the U.S. Treasury in connection with the initial sale of the preferred stock,” said Discover in a filing Wednesday with the U.S. Securities and Exchange Commission.

In addition, the SEC filing noted Discover’s intent to repurchase the warrant held by the Treasury, which allows the Treasury to purchase Discover’s shares if an agreement is reached on the price. If Discover doesn’t reach an agreement on a price at which to buy back the warrant, the government may auction the warrant, the filing said. The government has conducted such auctions with the warrant of Bank of America Corp. and J.P. Morgan Chase & Co.

The company’s shares closed at $15.66 Wednesday.

Discover is a credit-card issuer that also operates a payments network and has a stock market value of about $8.5 billion. The Riverwoods, company transformed itself into a bank holding company during the financial crisis as it battled fragile credit markets and losses stemming from souring credit card loans. With that bank status, Discover has participated in government-led efforts aimed at stabilizing the industry, including the government’s TARP investment.