Discover Financial Services said Friday that it had received about $1.2 billion in cash from the Treasury Department through the Troubled Asset Relief Program to boost its liquidity.
Discover sold the Treasury 1,224,558 preferred shares and a 10-year warrant to purchase 20,500,413 common shares at an exercise price of $8.96 each. The preferred stake will pay dividends of 5% for the first five years and 9% after that.
The amount raised is at the top of the $400 million-$1.2 billion range David Nelms, Discover's chief executive, predicted in December. His company is relying on federal cash and bank deposits after the market for selling bonds backed by credit card payments froze last year.
Shares of card issuers have been pummeled as the economy has weakened, causing more customers to miss payments.
Discover said at a January investor conference that failed customer loans will climb beyond 7% in the second quarter. It added $521 million to its provision for bad loans in the fourth quarter, and it expects to add further to reserves this year.
The rising losses are cushioned by settlement payments from MasterCard Inc. and Visa Inc. Discover agreed in October to accept $2.75 billion to resolve an antitrust case it brought against the two companies.