Discover Financial Services has come to an agreement with Citigroup Inc., which will see Discover gobble up an 80% stake in Student Loan Corp. as part of a $600 million multi-section deal.
The deal is expected to close by the end of the month and will add seven cents to the company’s 2012 earnings per share figure.
According to a federal filing Discover will pay a price equal to 99% of the principal and accrued interest balance on the loans.
Student Loan Corp. holds a vast majority of their portfolio in school-certified loans for four-year college students and graduate students, while 80% of their portfolio is held in active repayment.
Carlos Minetti, president of consumer banking and operations at Discover said in a statement:
“The acquisition of this portfolio further enhances our ability to achieve sustained, profitable growth in private student lending, which is a key component of our direct banking business.”
The statement goes on to add:
“Expanding our student loan portfolio provides Discover with opportunities to cross sell our direct banking products and … continue investing in competitive pricing, industry leading service and innovative products.”
For their part Citi gets to remove assets from their Citi Holdings unit, also known as their “bad-bank” a name given to the division because Citi has been trying to shrink those assets. Citi’s “bad bank” originally had $600 billion in assets but has been shrinking as the company sells off their non-core assets in small pieces.
Do you think Discover made a smart move by picking up a student loans portfolio.