Discover Financial Services is resuming its share buyback program after wrapping up a monthslong internal investigation into the company's servicing practices for private student loans.
The $121 billion-asset consumer lender said that it may still be subject to regulatory actions, but analysts were optimistic after the company's announcement on Wednesday.
"This is a positive development as it signals a coming resolution to the issue," Jefferies analyst John Hecht wrote in a note to clients, adding that he expects Discover to be "relatively aggressive in buying stock."
Discover, which was
The results of the investigation, conducted by a board-appointed independent panel, have not been made public. But in a securities filing on Wednesday, Discover said the investigation is complete and that executives have determined they can resume the buyback program.
"The Company continues to communicate with the supervisory staff of its regulators regarding the internal investigation, and it may be subject to reviews, investigations, proceedings, or other actions in connection with its student loan servicing practices and related compliance matters," Discover said in the filing.
Discover spokesperson Matthew Towson declined to provide further details but said in an email that stock buybacks will resume "in the near term."
The Riverwoods, Illinois, company has an estimated $3.4 billion in remaining capacity in a buyback program of up to $4.2 billion that runs through June 2023, according to RBC Capital Markets analyst Jon Arfstrom.
"We believe this morning's announcement is a clear positive as it lifts one of the few overhangs facing the company following several quarters of positive momentum in fundamental trends," Arfstrom wrote in a research note. He pointed to the company's loan growth and few signs of alarms over its customers' ability to repay their loans.
Discover's large amount of excess capital gives it flexibility to conduct buybacks, Wolfe Research analyst Bill Carcache wrote in a note to clients. The company's common equity tier 1 ratio stood at 13.9% at the end of the third quarter, far above its 10.5% target, Carcache wrote.
Discover's stock price was up 2.6% to $106.36 in mid-afternoon trading.
The lender, which offers private student loans and personal loans in addition to credit cards, had roughly $10.4 billion in student loans at the end of the third quarter, up 2% from a year earlier.
