UPDATE: Discover To Pay $55.9 Million To Buy Tree.com's Mortgage Business
13 Maggio 2011 - 12:41AM
Dow Jones News
Discover Financial Services (DFS) said Thursday it agreed to
buy, for $55.9 million, the mortgage assets of Home Loan Center, a
unit of Tree.com Inc. (TREE)
The foray by Discover, primarily a credit card lender, into
mortgages marks its latest effort to grow its book of business, as
it seeks new ways to boost revenue. To this end, it has also been
doing personal loans and private student loans.
For lenders, including Discover, credit-card revenues have
shrunk along with loans outstanding. For many quarters now,
lenders' profits have been helped by loss-reserve releases as
credit trends improve, rather than growing from an actual increase
in revenue.
The acquisition, slated to close by the end of the year, will
have a nominal impact on its 2012 earnings, Discover said in a
statement Thursday.
The Riverwoods, Ill., company said it wants to extend home loans
"to sell in secondary markets."
Tree.com, for its part, said the deal will allow it to focus on
core businesses, and expects to use proceeds from the transaction
for business investments.
Separately, Tree.com reported its first-quarter loss widened as
selling and marketing expenses jumped, and revenue fell 25% to
$33.4 million.
In March, Discover swung to a record first-quarter profit as
improving credit trends allowed the company to free up funds in
reserves and cardholders spent more.
Unlike most other card companies that either issue plastic or
process the transactions, Discover and bigger rival American
Express Co. (AXP) do both. Therefore, in addition to the interest
Discover earns on its loans, a chunk of its revenue comes from fees
it charges banks and merchants, such as grocery stores or gas
stations, to process card payments.
Discover's shares closed up 2 cents at $24.20 Thursday, while
Tree.com's ended up 4.7% at $5.40. In after-hours trading, Discover
shares were flat, while Tree.com shares rose 34% to $7.25.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com
--John Kell, Dow Jones Newswires contributed to this
article.
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