Discover 2009 Annual Report Download - page 33

Item 1A. Risk Factors
You should carefully consider each of the following risks described below and all of the other information in this annual
report on Form 10-K in evaluating us. Our business, financial condition, cash flows and/or results of operations could be
materially adversely affected by any of these risks. The trading price of our common stock could decline due to any of
these risks.
This annual report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in this annual report on Form 10-K. See “Special
Note Regarding Forward-Looking Statements.”
Risks Related to the Current Environment and Recent Developments
The continued global economic downturn and financial market instability have had and could continue to have a
material adverse effect on our business, results of operations, financial condition, access to funding and the trading
price of our common stock.
The continued global economic downturn and financial market instability have adversely affected unemployment rates,
consumer spending, consumer indebtedness, availability of consumer credit, asset values, investments and liquidity. These
factors, along with an already high level of consumer indebtedness, have adversely affected the ability and willingness of
customers to pay amounts owed to us. This environment has resulted in increased delinquencies and charge-offs. The
owned over 30 days delinquent rate was 4.92% at November 30, 2009, up from 4.35% at November 30, 2008, and the
full-year owned net charge-off rate was 7.45% for 2009, up from 4.59% for 2008. The economic downturn may
continue, unemployment may remain elevated or rise, home values may continue to be depressed and consumer credit
availability may continue to decrease. The ability and willingness of customers to pay amounts owed to us could continue
to be adversely affected, which would further increase delinquencies and charge-offs and materially adversely affect our
profitability. In addition, the deterioration in economic conditions could reduce the usage of our cards, the number of
transactions on our cards and the average purchase amount of transactions on our cards, which would reduce
transaction fees and interest income and thereby adversely affect profitability. We rely heavily on our credit card business
to generate earnings. Our interest income for credit card loans was $2.8 billion for the 2009 fiscal year. Excluding
settlement payments received from Visa, this was 59% of revenues (defined as net interest income plus other income).
Deterioration in the global capital markets has led to concerns by market participants about the stability of financial
markets generally and the strength of counterparties, resulting in a contraction of available credit. Although we raised
funds in capital market issuances in the third and fourth quarters of 2009, there is no assurance that the markets will be
open to us in the future. In addition, it is uncertain whether the securitization markets will be available on terms or
volumes that are attractive to us going forward, particularly after the Federal Reserve’s Term Asset-Backed Securities Loan
Facility Program (“TALF”) ends in March 2010. See “– If we do not securitize our receivables, it may have a material
adverse effect on our liquidity, cost of funds and overall financial condition.” Therefore, we continue to emphasize
deposits as an ongoing funding source. See “– An inability to accept or maintain deposits in the future could materially
adversely affect our liquidity position and our ability to fund our business.” Further deterioration of the financial markets
could materially adversely affect our capital, funding and liquidity position as well as our overall financial condition.
These macroeconomic trends affect key drivers of our results, including our loan balances outstanding, credit losses
(including provisions and charge-offs) and cost of funding. These trends may cause our earnings and margins to fluctuate
from quarter to quarter and diverge from expectations of analysts and investors, who may have differing assumptions
regarding their impact on our business, and may impact the trading price of our common stock.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 will significantly impact our business
practices and our results of operations.
The Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act, requires us to make
fundamental changes to many of our current business practices, including marketing, underwriting, pricing and billing.
For example, we currently have the ability to increase interest rates on existing balances to respond to market conditions
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