Discover boosted by $1.2 billion investment

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On March 13, Discover Financial Services announced a $1.2 billion investment from the Treasury Department after the credit card issuer transformed itself into a bank-holding company giving it access to government support.

According to Discover, it sold 1,224,558 shares of its preferred stock to the U.S. Treasury as well as a 10-year warrant to purchase 20,500,413 shares of its common stock at a price of $8.96 each.

The government will earn cumulative dividends at a rate of 5% a year for the first five years and then 9% a year following this, Discover added.

Discover became a bank-holding company under the Bank Holding Company Act of 1956 and a financial-holding company under the Gramm-Leach-Bliley Act, prior to the deal.

That made the credit card issuer eligible for the Treasury's Capital Purchase Program, part of the Troubled Asset Relief Program, or TARP.

Since the start of the program the government has invested almost $200 billion in banks and other financial-services companies.

Rival credit card issuer American Express became a bank-holding company in November and raised more than $3 billion from the TARP's CPP program soon after.

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