Discover 2011 Annual Report Download - page 47

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We may not be able to successfully protect our brands and our other intellectual property. If others misappropriate, use or
otherwise diminish the value of our intellectual property, our business could be adversely affected. In addition, third parties
may allege that our marketing, processes or systems may infringe their intellectual property rights. Given the potential risks and
uncertainties of such claims, our business could be adversely affected by having to pay significant monetary damages or
licensing fees and we may have to alter our business practices.
Acquisitions or strategic investments that we pursue may not be successful and could disrupt our business, harm our
financial condition or reduce our earnings.
We may consider or undertake strategic acquisitions of, or material investments in, businesses, products, portfolios of
loans or technologies, such as our recent private student loan acquisitions. We may not be able to identify suitable acquisition
or investment candidates, or even if we do identify suitable candidates, they may be difficult to finance, expensive to fund and
there is no guarantee that we can obtain any necessary regulatory approvals or complete the transactions on terms that are
favorable to us. We generally must receive federal regulatory approvals before we can acquire a bank, bank holding company,
deposits or certain assets or businesses. For additional information regarding bank regulatory limitations on acquisitions and
investments, see "Business - Supervision and Regulation - Acquisitions and Investments." To the extent we pay the purchase
price of any acquisition or investment in cash, it would reduce our cash balances and regulatory capital, which may have an
adverse effect on our financial condition; similarly, if the purchase price is paid with our stock, it would be dilutive to our
stockholders. In addition, we may assume liabilities associated with a business acquisition or investment, including unrecorded
liabilities that are not discovered at the time of the transaction, and the repayment of those liabilities may have an adverse effect
on our financial condition.
We may not be able to successfully integrate the personnel, operations, businesses, products, or technologies of an
acquisition or investment. Integration may be particularly challenging if we enter into a line of business in which we have
limited experience and the business operates in a difficult legal, regulatory or competitive environment. We may find that we do
not have adequate operations or expertise to manage the new business. The integration of any acquisition or investment may
divert management's time and resources from our core business, which could impair our relationships with our current
employees, customers and strategic partners and disrupt our operations. Acquisitions and investments also may not perform to
our expectations for various reasons, including the loss of key personnel, customers or vendors. If we fail to integrate
acquisitions or investments or realize the expected benefits, we may lose the return on these acquisitions or investments or
incur additional transaction costs, and our business and financial condition may be harmed as a result.
Laws, regulations, and supervisory guidance and practices, or the application thereof, may adversely affect our business,
financial condition and results of operations.
We must comply with an array of banking and consumer lending laws and regulations in all of the jurisdictions in which
we operate. As a bank holding company, we are subject to oversight, regulation and examination by the Federal Reserve,
including scrutiny of our risk management program; business strategy, earnings, capital and cash flow; anti-money laundering
program; and examination of our non-bank businesses, including Discover Network, PULSE and Diners Club, and their
relationships with our banking subsidiaries. Our banking subsidiaries are subject to regulation and regular examinations by the
FDIC and the Delaware Bank Commissioner. We are also now subject to regulation and regular examination by the CFPB. To
the extent that states enact requirements that differ from federal standards or state officials and courts adopt interpretations of
federal consumer laws that differ from those adopted by the CFPB, we may face increased inquiries and enforcement actions
from state attorney general offices. In addition, we are subject to regulation by the Federal Trade Commission, state banking
regulators and the U.S. Department of Justice, as well as the SEC and New York Stock Exchange in our capacity as a public
company. In addition, as our payments business has expanded globally through the acquisition of Diners Club, we are subject
to government regulation in countries in which our networks operate or our cards are used, either directly or indirectly through
regulation affecting Diners Club network licensees.
From time to time, these regulations and regulatory agencies have required us to alter certain of our operating practices,
and may require us to do the same in the future. Our ability to execute our business strategies through acquisitions or the
introduction of new products or pricing may be impaired or delayed as a result of regulatory review or failure to obtain required
regulatory approvals. Various federal and state regulators have broad discretion to impose restrictions and requirements on our
company, subsidiaries and operations, including restrictions on capital actions such as increasing dividends. U.S. federal laws,
such as the CARD Act, and state consumer protection laws and rules, limit the manner and terms on which we may offer and
extend credit. We have had class action lawsuits filed against us alleging that we have violated various federal and state laws,
such as the Truth in Lending Act and the Telephone Consumer Protection Act. We are subject to capital, funding and liquidity
requirements prescribed by statutes, regulations and orders, including initiatives under the Reform Act and Basel III that will
require us to hold higher levels of capital to support our businesses. We are also subject to the requirements of accounting
standard setters and those who interpret the accounting standards (such as the FASB, the SEC, banking regulators and our
independent registered public accounting firm), who may add new requirements or change their interpretations on how
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