Shares of Riverwoods-based Discover Financial Services fell nearly 10% Tuesday after the company announced the sudden resignation of CEO Roger Hochschild amid compliance issues.
Hochschild, 58, a longtime Discover executive, stepped down “effective immediately” Monday as CEO, president and board member at the credit card and digital banking company, according to a news release. John Owen, 62, a retired bank executive who serves on the Discover board, was appointed interim CEO and president while the company conducts a search for a permanent successor.
“The Board and Roger have agreed that now is the right time to transition leadership, and we thank Roger for his 25 years of service to the company,” Tom Maheras, the company’s chairman, said in the release. “The Board is continuously focused on Discover reaching its full potential across the business, including our commitment to enhancing compliance, risk management and corporate governance.”
A Discover spokesperson declined additional comment Tuesday.
Last month, the company disclosed a long-running credit card “misclassification” that resulted in higher charges for certain merchants and merchant acquirers — financial institutions that process credit and debit card transactions. Credit card holders were not affected by the misclassification, Discover said in filings with the Securities and Exchange Commission.
Discover added a $365 million liability to its financial statements, the projected cost of issuing refunds to merchants and merchant acquirers as a result of the card product misclassification. It also is in discussion with regulators regarding corporate governance and risk management issues, and may be facing “enforcement actions” and monetary penalties, the company said in its second quarter earnings report filed July 28 with the SEC.
Hochschild started at Discover in 1998 as executive vice president and chief marketing officer. He became president and chief operating officer in 2004, and helped lead Discover through a 2007 spinoff from Morgan Stanley. In 2018, Hochschild succeeded David Nelms as CEO and was added to the Discover board.
In 2022, Hochschild had base pay of $1.1 million, and received a total of $10.6 million in stock awards and other compensation, according to the company’s annual proxy filing in May.
As part of his resignation, Hochschild will serve as an adviser to the board and continue to receive his base salary through Dec. 31 to ensure a “smooth transition” while an executive search firm seeks his replacement. Hochschild will not participate in the fiscal 2023 incentive program, will not be eligible for additional equity grants and will not receive any severance in connection with his resignation, the company said Monday.
“It has been a privilege to spend 25 years with the people of Discover at this amazing company,” Hochschild said in the release. “I know that the company will enjoy continued success.”
Owen, who retired in March 2021 as chief operating officer of Regions Financial Corp., joined the Discover board in June 2022 and was appointed to the risk oversight committee. In his new role, Owen will get an annual base pay of $950,000 and a $500,000 stock award when a permanent successor takes the reins or within a year, whichever comes first, according to SEC filings.
The Discover card was launched nationally in 1986 by then-owner Sears to compete for consumer wallet space with Visa, Mastercard and American Express.
In addition to its signature credit card, Discover offers private student loans, personal loans, home loans and deposit products. Discover had $112.1 billion in loan receivables and $70.5 billion in deposits at the end of last year, according to financial statements.
The stock traded down more than 9.4% Tuesday, closing at $92.96 per share.
