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Discover Earnings to Be Reduced After Acquisitions, CFO Says

Discover Financial Services said earnings per share will be reduced this quarter after it had to acquire some businesses in Europe and regulators revoked the license of a Slovenian franchise.

Profit will be lowered by “mid to high single-digit pennies per share” after the Riverwoods, Illinois-based bank-card network acquired the Diners Club franchise in Italy and a payment-processing firm in Slovenia, Chief Financial Officer Mark Graf said today at a conference in New York. Slovenia’s central bank has also revoked the license of the Diners Club franchise in that country, according to a document on its website.

“It’s going to be one-time in nature,” Graf said. “There’s no significant run-rate impacts going forward.”

The acquisitions show some of the risks Discover Chief Executive Officer David Nelms, 52, faces as he seeks to broaden the reach of the firm’s payments network. The businesses were owned by the same company, which couldn’t ensure “safe and reliable” business in Slovenia, according to a transcript on the Diners Club website in that country. Discover owns that brand as well as the Pulse debit network.

‘Highly Unlikely’

“We continue to monitor the political and economic situation in Europe and work with our local Diners Club licensees with regard to their ability to maintain financing sufficient to support business operations,” Discover said in a quarterly filing in April. “The inability of certain licensees to maintain operating financing could adversely impact our payment-services business.”

The franchises and the payments processor were owned by Findale Enterprises Ltd., according to Jon Drummond, a spokesman for Discover. Findale is owned by Tomaz Lovse, a Slovenian businessman, according to Brina Cernetic, a spokeswoman for the Diners Club franchise in that country.

The Slovenian central bank revoked the local franchise’s license for credit-card payments on May 14, Drummond said. While Discover is acquiring the Italian franchise, Drummond said it’s “highly unlikely” the firm will buy the Slovenian operation. Terms of the acquisition weren’t disclosed.

“Italy made more sense to us,” Drummond said in a phone interview. “It was just more strategic for us.”

Discover fell 0.6 percent to $48.03 at 2:02 p.m. in New York. The stock has climbed 25 percent this year, outpacing the 82-company Standard & Poor’s 500 Financials Index, which has gained 20 percent.

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