Morningstar DBRS Upgrades Discover Financial Services' Credit Ratings Following Acquisition by Capital One Financial Corporation; Then Discontinues and Withdraws All Credit Ratings

DBRS, Inc. (Morningstar DBRS) discontinued and withdrew its credit ratings on Discover Financial Services (Discover or the Company) and its banking subsidiary, Discover Bank (the Bank). Morningstar DBRS made the decision to discontinue and withdraw the credit ratings following Discover's acquisition by Capital One Financial Corporation (Capital One, rated A (low) with Stable trend by Morningstar DBRS), which closed on May 18, 2025.

Prior to discontinuation, Morningstar DBRS equalized the credit ratings of Discover with those of Capital One, including upgrading Discover's Long-Term Issuer Rating to A (low) from BBB (high). Additionally, prior to discontinuation, Morningstar DBRS equalized the credit ratings of the Bank with those of Capital One, National Association (rated "A" with a Stable trend by Morningstar DBRS) including upgrading the Bank's Long-Term Issuer Rating to "A" from A (low). The credit rating upgrades reflect Morningstar DBRS' view that Discover will benefit from merging with Capital One, a more highly rated financial institution. Morningstar DBRS expects Discover's integration with Capital One to result in efficiencies and economies of scale along with the benefits of a more diversified business model and a larger financial institution. Morningstar DBRS also believes Discover's funding profile will benefit from Capital One's solid deposit franchise. Before the discontinuation of the credit ratings, the Support Assessment for the Bank was SA1 while Discover's SA3.

These credit rating actions resolve the Under Review with Positive Implications status under which Discover and the Bank were placed on February 20, 2024.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

Together, the April 16, 2025, amended and restated consent order of Discover Bank by the FDIC and the April 18, 2025, consent order of the Company and DFS Services LLC by the Board of Governors of the Federal Reserve System resolve these agencies' investigations of the Company, the Bank, and DFS Services LLC concerning the previously disclosed card product misclassification issue. Together, the agencies assessed civil money penalties of $250 million, the entirety of which was accrued as of September 30, 2024.

Furthermore, over the past year, Discover and certain of its subsidiaries entered into a settlement agreement (the revised settlement has moved for preliminary court approval) to resolve the merchant card product misclassification litigation and the Company expects all payments under the settlement agreement to be covered by the previously recorded $1.2 billion restitution liability. As a result of the aforementioned developments, Morningstar DBRS views the uncertainty related to product misclassification issue and consent orders as substantially diminished.

The S factor has changed from the prior credit rating disclosure to reflect the aforementioned recent developments.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 4, 2024) https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar Inc. and company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

Morningstar DBRS did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.