Discover Financial Services has received approximately $1.2 billion in cash in exchange for issuing its preferred stock and a warrant to purchase its common stock as part of the US Treasury’s capital purchase programme or CPP.
Discover issued and sold to the Treasury 1.22m shares of its preferred stock and a 10-year warrant to purchase 20.5m shares of its common stock at an exercise price of $8.96 per share. The preferred stock will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter.
Immediately prior to the issuance of the preferred stock and the warrant, Discover Financial Services became a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act.
The capital purchase programme is a voluntary programme designed to assist financial institutions in increasing the flow of financing to US businesses and consumers as a way of stimulating the US economy. The CPP is available to bank holding companies, financial holding companies, insured depository institutions and savings and loan holding companies that engage solely or predominately in activities that are permissible for financial holding companies under relevant law.
