Fitch Upgrades Discover Financial's IDR to 'A-'; Withdraws Rating

Published: 2025-05-21 04:34:21 ET DFS

Published on 05/21/2025 at 04:34

Fitch Ratings has upgraded and withdrawn the Long-Term Issuer Default Ratings (IDRs) of Discover Financial Services (DFS) and its subsidiary, Discover Bank (DB) to 'A-' and 'A', respectively, from 'BBB+'.

Fitch has also removed the ratings from Rating Watch Positive (RWP) and has assigned a Stable Outlook. DFS' and DB's ratings were upgraded to align them with Capital One Financial Corp.'s (COF; IDR: A-/Stable) and Capital One N.A.'s (CONA; A/Stable) existing ratings. DFS's and DB's ratings were placed on RWP on Feb. 21, 2024, following COF's announced acquisition of DFS. The rating actions reflect the transaction's closing on May 18, 2025.

Fitch has withdrawn the ratings of DFS and DB as the entities have been acquired by COF and CONA, respectively, and no longer exist. Fitch has withdrawn the ratings of DFS's preferred stock as it has been dissolved and reissued under COF. Fitch will no longer provide ratings or analytical coverage for DFS, DB or its securities. Today's rating actions have no impact on COF's or CONA's ratings.

Key Rating Drivers

On April 18, 2025, the Federal Reserve, FDIC and Office of the Comptroller of the Currency approved the transaction, albeit with expected consent orders and conditions for DFS. The Department of Justice did not object to the combination.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Negative rating sensitivities do not apply as the ratings have been withdrawn.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Positive rating sensitivities do not apply as the ratings have been withdrawn.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

Long-Term IDR: Fitch has upgraded the Long-Term IDRs of DFS to 'A-' with a Stable Outlook, in line with that of COF. Fitch has upgraded DB's Long-Term IDR to 'A'/Stable to align with CONA's. Following the upgrades, Fitch withdrew these ratings.

Short-Term IDR and VR: DFS' and DB's Short-Term IDRs were upgraded to 'F1' from 'F2' to align with COF's and CONA's. Fitch has upgraded DFS' and DB's Viability Rating (VR) to 'a-' from 'bbb+' as well. Following the upgrades, Fitch withdrew these ratings.

Senior Unsecured: Fitch upgraded DFS' long-term senior unsecured debt ratings to 'A-' and DB's to 'A' to align with COF's and CONA's Long-Term IDRs because the instruments have been consolidated into COF and CONA.

Deposit Ratings: Fitch upgraded DB's long-term uninsured deposit ratings to 'A+' from 'A-' and its short-term deposit rating to 'F1' from 'F2', which aligns with CONA's deposit ratings because the deposits have been consolidated into CONA.

Subordinated Debt: Fitch upgraded DB's subordinated debt rating to 'BBB+' from 'BBB' to align with CONA's subordinated debt ratings because the instruments have been consolidated into COF and CONA, CONA's subordinated debt is notched one level below its VR for loss severity. In accordance with the 'Bank Rating Criteria,' this reflects alternate notching to the base case of two notches due to Fitch's view of U.S. regulators' likely approach to early intervention and resolution alternatives under U.S. law.

Preferred Stock: Fitch upgraded DFS' preferred stock rating to 'BB+' from 'BB', to align with COF's ratings, which are similarly four notches below COF's VR. This encompasses two notches for nonperformance and two notches for loss severity. Fitch then withdrew the ratings because COF retired the preferred shares and reissued them from its entity.

Government Support: Fitch affirmed DFS and DB's Government Support Ratings of 'ns' and then withdrew them, because the entities no longer exist. In Fitch's view, the probability of support is unlikely.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

Rating sensitivities for DFS's and DB's Long-Term IDRs, Short-Term IDRs, VRs, GS ratings and preferred stock do not apply as the ratings have been withdrawn.

Senior Unsecured Debt ratings are generally sensitive to changes in the respective entities' Long-Term IDRs. Subordinated Debt ratings would be sensitive to the respective entity's VRs.

The Long-Term Deposit rating is sensitive to a change in its Long-Term IDR, while its Short-Term Deposit rating is sensitive to the company's Long-Term Deposit rating and Fitch's assessment of the issuer's funding and liquidity profile.

Rating sensitivities for support ratings do not apply as the ratings have been withdrawn.

VR ADJUSTMENTS

The Asset Quality score has been assigned below the implied score due to the following reason: Concentrations, to be consistent with COF's asset quality score.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

Ratings linked to those of Capital One Financial Corp, which acquired Discover Financial Services

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.