Discover Financial Services’ strategy to diversify beyond credit cards suffered a setback as the lender’s deal to buy $1.1 billion in banking deposits from Allstate Corp. has fallen through.
Allstate said Aug. 1 in a quarterly earnings filing with the Securities and Exchange Commission that its previously announced agreement with Discover was terminated.
“We are continuing with plans to wind down the Allstate Bank’s operations and anticipate obtaining regulatory approval to cancel its banking charter by year end 2011,” the Northbrook, Ill., property and life insurer said in the filing.
Allstate and Discover, of Riverwoods, Ill., announced in February a deal in which the credit card lender would take on the deposits and the insurer’s agents would market Discover’s online savings accounts, certificates of deposits and other products to consumers (
A Discover spokesperson wrote in an email that the failed deal “doesn’t affect our commitment to our direct banking strategy.”
An emailed statement provided by an Allstate spokesperson said that the two companies had agreed to a date by which regulatory approvals for the deal would need to be obtained to complete the transaction.
“Due to the complex and changing regulatory environment, the approvals needed were not obtained by the agreed upon date,” Allstate said. “As a result, Allstate Bank and Discover Bank have terminated their agreement to transfer the deposits and will not enter into a marketing and distribution agreement.”
Allstate still plans to exit the banking business, which is “no longer core” to its “focus on insurance, retirement and investment products,” the company said. Allstate expects to receive regulatory approval in the third quarter to close its bank and plans to cease operations in the fourth quarter.
When the deal was announced, Allstate cited increasing regulatory pressure as a key reason for exiting the banking business, the same reason MetLife Inc. gave in July when it announced it was putting its $16 billion-asset depository up for sale.
Discover has been trying to grow its direct banking business.
In May, the company announced an agreement to buy the mortgage origination unit of Tree.com Inc. for $55.9 million, with plans to originate home loans and sell them to the secondary market.
