Mark Graf - Executive Vice President and CFO
Bill Franklin - Head, Investor Relations
Ryan Nash - Goldman Sachs
Discover Financial Services (DFS) Goldman Sachs Financial Services Conference Transcript December 11, 2013 8:40 AM ET
Ryan Nash - Goldman Sachs
Okay. We are going to get started. Up next we have Discover Financial joining us for the first time here at the Goldman Conference. I’d like to think they changed their fiscal year so they could attend the conference but that’s probably not the case. Since 2011, Discover has been the best performing financial in the S&P up over 185% versus up 44% for the S&P. Discover is one of the few growth stories in financials as they have continued to take market share and card lending for the past three years and they’ve build out one of the most successful consumer direct lending businesses. With the highest capital ratios in the industry here to tell us how they are going to continue to grow is Mark Graf, Executive Vice President and Chief Financial Officer; and Bill Franklin, Head of Investor Relations.
With that, I am going to turn over to Mark.
Thanks Ryan. Thanks, Ryan, and thanks all of you for attending today. It’s pleasure to be here with you. And let me start by extending apologies from my CEO, David, who had a last minute conflict, so he apologies for not being able to joining here today himself.
Before I begin, I’d like to direct your attention to some very important disclosures. I’ll give you the cliff notes version, basically any forward-looking statements I make today are subject to risks and uncertainties is further disclosed in our SEC filings and actual results could differ materially from those forward-looking statements. So that disclosure out of the way, let’s begin.
Four key themes I will be talking about today. First, how Discover is gaining profitable card market share through our existing customer base, a new flagship product, continued focus on cash rewards, leadership and excellence in customer service.
Second, our continued discipline as we broadened our product suite to become the leading direct consumer bank.
Third, our partnership approach to drive long-term volume and profit growth in the payments business.
And finally, how we are generating superior returns and creating shareholder value through effective capital management.
As I mentioned, our card loan portfolio has grown significantly faster than the industry. In other words, we are gaining share. Our growth hasn’t been due to looser underwriting standards for extending larger credit line. In fact, our underwriting standards have not changed materially since the crisis and we are pretty conservative when it comes to the sizing of credit lines.
We believe there are three primary factors that have driven card loan growth and we will continue to drive that growth in the future. First, our relentless focus on prime cash reward customers who have a tendency to revolve. Second, our best-in-class customer service and reward structure which keeps the card member engage thereby reducing attrition. And lastly, discipline underwriting which is driven lower losses.
Given that we return to growth more than two years ago, we are facing more difficult comps. So while we feel very good about our ability to grow, achieve growth above that of our competitors, it maybe difficult to continue to grow at the extreme top end of our targeted range of 5% -- 2% to 5% for card.
As I mentioned, posting lower losses than peers helped us return to growth before most in the industry. Thanks to the quality of our customer base and discipline underwriting, our charge-offs continued to compare favorably to the card industry.
As you look at this chart, it feels like we are at or near the bottom of the credit cycle. However, we don’t see a turn in credit on the horizon. The environment continues to feel very stable.
As a result, card reserve trajectories will be more a function of growth in loan outstanding, as well as a declining inventory of age charge-offs against which we can realize recoveries.
Our new flagship card product, Discover it has expanded on our already popular features of no annual fee, great rewards and great service. We have added additional benefits, like no fees for being late for the first time, no rate increase, if you fall behind on your payments, job loss support programs and payment flexibility to pay till midnight on your due date.
And we recently announced that we are the first major card issuer to provide free FICO Scores on the monthly statements for Discover it card members to help them stay on top of their credit and gain insight into key information and they influence how lenders and others evaluate them.
We have gone beyond features to deliver unique design and experience. It is truly a distinctive looking card, a result of working with designers across industries and across geographies. This focus on broad robust value proportion is giving us the ability to reduce reliance on balance transfers for new customer acquisition.
We continue to target prime revolvers and are seeing great response rates, more initial engagement for new accounts and more accounts compared to last year, despite significant lower levels of new account balance transfers.
I know many of you heard this before, but we’ll get so many questions, I think it’s important to discuss the differences between federal and private student loans. The federal loan program now accounts for approximately 95% of annual originations, with outstandings greater than $1 trillion, so it’s actually larger than the card loan market.
Unlike other asset classes which you’ve seen improvement in credit performance over the past couple of years, federal student loan delinquencies have continued to deteriorate to significant levels, increasing from levels that were already high. Discover does not participate in this federal student loan market.
That said, we are an active participant in the private student loan market, which we initially entered in 2007 by leveraging our unsecured underwriting capabilities. This has produced 90-day delinquency rates of less than 1% for our portfolio versus low double-digit delinquency rates in federal student loans.
We have grown our private student loan portfolio organically to almost $4 billion over the last five years. In addition, we have made two accretive acquisitions that have been important for us to achieve scaling the business.
In order to strengthen our market position, we have launched new products and improved our operating efficiency. We expect the market should show good growth long-term as student enrollment continues to arise.
College and university students have attracted demographics. They are up with the mobile and mostly new to Discover, allowing us to establish an early relationship and to build upon it. And our underwriting approach leverages the capabilities that have driven our very strong performance in the card business.
Discover private student loans are carefully underwritten by taking into consideration the applicant or cosigner’s credit worthiness and future ability to repay. We provide loans only to students enrolled in traditional four-year schools and graduate schools.
As I mentioned previously, we did not extend loans to students at, for profit, Colleges and Universities. As a direct outcome of our credit-centric philosophy, we’re maintaining a significantly lower charge-off rate compared to our largest competitor as illustrated by the chart on the right.
Over the long term, we’re managing our total business to a target loss rate of approximately 1%. However, given that only about 40% of our organic book is in repayment, the charge-off rate for this portion of the portfolio in our reported financials is currently above 1%. We’ll continue to rise somewhat before coming back down towards the target.
Speaking for a moment about the purchase student loan portfolios, they continue to perform in line with our overall expectations. However, as you can see on the slide, this is the result of better performance in some pools and underperformance in others. Unlike bonds, which are not mark-to-market, which are not classified -- which are not mark-to-market when classified as held-to-maturity, applying PCI accounting requires us to essentially mark loan pools to market.
As a result, pools performing worse than original expectations require us to post an increase to loan-loss reserves while pools performing better than expected produce an increase in accretable yield over their remaining lives. All this is a very long-winded way of saying, you will see an increase in loan-loss reserves and an increase in accretable yield on PCI student loans in our fourth quarter results. All this despite the fact, the portfolio continues to perform in line with our expectations.
Personal loans are our third largest asset class and continue to generate good growth and strong returns. We’ve leveraged our excellent credit risk management capabilities to deliver a debt consolidation product without spending value and service. This is the product where we focused on disciplined growth as opposed to a more aggressive approach.
Our growth rates are more reflective of the small relative size of the portfolio. We’ve seen many competitors enter the space and meet with unsatisfactory results by quickly moving down the credit spectrum or taking an overly aggressive approach to the market.
We believe that managed in a disciplined fashion, personal loans can provide good growth and profitability for years to come. We begun to leverage this platform in other areas such as home equity installment loans which we launched in August. We hope to be a success for cross-selling this product as we have been with personal loans where customers with the pre-existing Discover relationship make up over 60% of the portfolio.
We launched Discover Home Loans in June of 2012 to the acquisition of the home loan center from LendingTree. Currently, we’re leverage our customer service expertise and act, adhering strictly to a fee-based model for we originate loans and subsequently sell the mortgages into the secondary market with servicing released.
As 30-year mortgage rates increased significantly in the third quarter, our origination volumes decreased along with the industry. And they are likely to decline a bit more this quarter.
To manage the slowdown, we paved back on staffing levels and we launched additional products and target purchase money volumes as well. As the largest single consumer asset class, mortgages of our products make sense for us to offer as part of our effort to be leading direct bank. But as we said before, they are and will remain relatively immaterial to our P&L for some time to come.
Direct consumer deposits are very valuable funding source for Discover. Since the crisis, we’ve more than doubled the funding mix contribution of this channel. Over the past several years, our focus has shifted from growth to stability as we've been through multiple rounds of pricing rationalization which has helped position our balance sheet in asset-sensitive posture.
To further improve our cost of funds position and build stronger customer relationships, we recently self launched Cashback Checking. This feature-rich product has a simple value proposition. No monthly fees, no minimum balance and $0.10 in Cashback Bonus every time the customer uses their debit card, makes an online bill payment or writes a check.
Having our own third -- three-party debit network also helps add value to the product. So far we rolled it out to select Discover Cashback card customers but eventually we roll it out to the broad market. While we are excited about the launch, we are mindful it will take time for balances to build as checking deposits are among the stickiest of all bank products.
Switching to our other business segment. Since 2007, our payments business has grown from a domestic-only network with good acceptance in the U.S. to the third largest global payments network. Chart show that the trailing 12 months, total volume growth slowed as did profitability as PULSE volumes and revenue decline and we took some charges in the Diners business in Europe.
Diners in the debit environment remains challenging and as a result may produce a few more bumps in the road as we go forward. These challenges combined with potential pressure on Discover network partners volume as legacy contract come up for renewal, keep our near-term outlook for payment services somewhat muted. However, we remain optimistic about the segments long-term profit potential.
Between the Diners Club franchise network-to-network alliances and partnerships with acquirers, we’ve grown to over 25 million acceptance locations worldwide. Our latest network-to-network partnerships with Smartlink, a leading domestic payments network in Vietnam. We continue to plant seeds for future growth with network alliances like these that has helped us become the third largest network and by signing emerging payments partnerships with PayPal, Facebook, Areva and others.
I will close by spending a moment on our capital and return profile. We have the strongest capital position among our peers with a Tier 1 common equity ratio of 14.7% as of September 30th. This is the higher level than the year ago despite increasing our dividend by 40% and repurchasing 5% of our shares, underscoring the capital generation of our business. We have more than adequate levels of capital to drive organic growth as well as planned capital actions. And despite robust ratios, we are driving excellent returns.
Ryan, that concludes my formal remarks. So, I will turn it back to you to begin the Q&A.
Ryan Nash - Goldman Sachs
Thanks, Mark. So Mark, starting from a high level you made up some strategic priorities at your Investor Day earlier in the year, which were to grow loans which were obviously driven by, in part by the it card launch, expand direct banking, grow volumes and acceptance and optimize your funding and enhance the operating model. Where do you think you made the most progress and as you look into 2014, how do you see this priorities evolving?
Great question. I guess I would say the most progress has clearly been made with respect to the card business with the launch of the it card. I think it is really leveraged our already leading position in the cash back reward space and has given us a platform where we can continue to drive receivables growth meaningfully in excess of the industry.
As I mentioned a second ago, we are seeing higher levels of new accounts. We're seeing earlier engagement from those new accounts and we're seeing higher levels of continuing engagements from those new accounts that are coming on the it card platform. One thing I didn't mentioned in my prepared remarks that I should have actually, that I would add is, we are also bringing these new accounts on at the lowest cost per account acquired that we've seen in recent history. So the efficiency of the marketing spend has also worked very well. So, I’m very, very pleased by that.
The funding side of the equation, I would say the launch of the bank new program to bring yet further duration on the liability side of the program, it is a great benefit. But I would say the even bigger one on the liability side of the business would be the soft launched of the Cashback Checking product. While I’m not rolled out broadly to the national market at this point in time, the benefit, the building checking balances over time will provide us, is going to be very significant. So, I’m particularly proud of that.
And then if you think about the payment business, I would say outside of the equation, particularly proud of our ability to attract the likes of the PayPals, the Facebooks, the Arevas. And, I think it is incumbent on us to keep building out that portfolio of emerging payment providers.
Ryan Nash - Goldman Sachs
Great. Now you talked about receivables growth continuing in excess of the industry, you noted in our prepared remarks that just given the comps get harder, it’s hard to sit on the hard end of the range. But as you look into 2014, how do the process that look for you to continue to take market share.
You’ve increased your market share by 300 basis points over the past three years. Obviously that’s continued into this year but as we look ahead, how much of that is coming from new customer acquisition, how much is coming from the greater share of wallet and what do you think are the biggest drivers of the loan growth are going to be into 2014?
I would say it's a healthy balance between existing cardmembers and new account acquisitions that are driving that growth. Obviously, the easiest stay anybody has is to your existing customer and I think most folks have more than one card in their wallet much to much to our share gain. So the name of game winning in the card space is to continue to be the card that gets reached for most frequently, the card that sits on top of the wallet, the card that is the primary go-to.
So continuing to engage with your existing customer base to make sure you are going to top the wallet position is one way you drive great growth. The other way is, obviously bringing new accounts into the fold, continuing to build the family of Discover Cards is outstanding, so that you continue to work that base for further engagement.
I think the thing that really serves us well in that regard, Ryan is our customer service. I know everybody hears -- folks talk about customer service and it tossed around pretty loosely and globally out there in the industry. I encourage you to look at our J.D. Power scores vis-à-vis the other players in the industry. I would also encourage you to think about our customer base and a leader in the card space from J.D. Power standard is a very high-end brand. It charges you significant amount of money to carry the card on your wallet.
We are right on top of them in terms of J.D. Power scores. My average customer has a $100,000 household income, very prime FICOs, 732 FICO, about a $100,000 in household income. And if you ever want to see the power of a customer service model, see what it means when you deliver it to a customer base that’s not used to getting it as opposed to a customer base that demands it.
Ryan Nash - Goldman Sachs
Great. Mark, you talked about lowering the cost per acquired account and you’ve obviously been spending a lot on marketing in the past couple of quarters as you build up some businesses and you rolled up the it card. But given that the cost per account continues to come down, you talked about the marketing spend strategy as you look ahead. Would you see incremental resources needed to be out in that to drive higher growth or given the fact that the cost per acquired is coming down, we have to see marketing spend coming down as we look into 2014?
Yeah. I guess -- see in my Midwestern sit group and the firm, so what I learned very early on is you make hay while the sun shines. And I would say this is an environment where we’ve got great traction. We are driving tremendous growth right now. So, I'm not so sure I would look to see us hit the accelerator on marketing spend. But I'm not so sure I would look to see us really back-off significantly either.
I think we feel we have the formula dialed in pretty well. It’s working extremely well for us right now in terms of the results we are producing. It’s compounding the value of this business to the benefit of the shareholder overtime.
What I would say, Ryan, is obviously at such point in time as we see those returns begin to diminish or at such point in time as environmentally factors dictate, they are clearly is leveraging the model, right. I mean, you could feel back. I got a number of leverage you can pull to feel back. It just doesn’t feel like the right time to be that right now.
Ryan Nash - Goldman Sachs
Just shifting gears to credit quality, card loss is, obviously, sub 2% now and you are noting the federal market trending a loan to bottom. Can you give us your outlook and how you see credit evolving over the next 12 to 15 months and are you making any changes to your underwriting at this point to drive better growth, given the demand credit environment?
Yeah. We haven’t made any significant changes to our underwriting profile. I think we feel like we know the credit we want to extend and I think the most important characteristics you need to look for in a credit guarantee enterprises, the management some humility, right. You need to recognize that the fundamentals of the business really don’t change all that much from time to time and sticking to your netting and knowing the kind of credit you want to accept is a key piece of long-term success, I would say.
In terms of how the environment so feels, I would say, yeah, it really feels very benign to me, Ryan, I would say, it feels like it is plateaued. Could it get a little better from here? Maybe, I mean none of us have ever seen anything like we have just come through or like we are in right now in our working lives in the card business.
So I would say the precision with which you can predict minor differences is not as good right now, is it might be a normal environment. So it could get a little better but we are managing the businesses though it’s plateaued. We are thinking about it though it’s plateaued.
So I think reserved bills really are going to be a more a function of growth and loan portfolios going forward and not generating enough new charge-offs to replenish the recoveries coming off the age both from the crisis.
Ryan Nash - Goldman Sachs
And just thinking about credit longer term, you guys talked at the annual farewell in the year about something around a 4% loss rate for this cycle? Can you just help us understand the kind of environment that we need to be in for you to actually get there? I guess the two part question?
Are you seeing any signs of deterioration in some of the newer vintages and do you think the way we end up seeing charge-offs rising is that the economy ends up picking up and we see underwriting sense loosen across the industry? Do you think that’s going to be the driver?
A lot in there, I will try and touch on it all, follow up if I don’t. I would say, getting from where we are to 4%, I would say, it’s going to take quite a long time. Particularly given the outlook, I just provided for the credit environment. I would say we are spending time thinking about as we look to our Investor Day in February, what we should be positioning for longer time loss guidance going forward in the light of how good the credit environment has materialized. So stay tuned on that front, would be my thought.
In terms of do I expect competition to bleed into the credit side of equation? We really have seen competition focus heavily in the rewards space. I’ve said before the Card Act was not a good thing for this industry and it wasn’t. But if there was a silver lining to that cloud, it is the fact that it brought real disciplined into the marketplace and we have really seen that kind of stick consistently across the players. So credit and pricing feel pretty good to us right now in the marketplace. Rewards is clearly the competitive landscape that’s where we are seeing the pressure.
Ryan Nash - Goldman Sachs
Great. And just sticking on the theme of competition, yields in the card space have actually held up much better than the other places just giving some of the credit improvement we have seen funding tailwinds. As we are looking ahead to ’14, assuming your credit outlook is correct and we do remain benign? What do you think of be some of the biggest impacts of your net interest margin? Could we see another year where competition remains benign, yields to have good support and there is more funding tailwinds?
I would point everybody to our Investor Relations website. Pull down our investor date deck from this past year. It’s got all of our funding maturities for ABS and depository liabilities by quarter and the rates associated within through 2014 and I think in looking at that what you can see is that we definitely do have a funding tailwind that continues to push us along in ’14.
What I would say is, I would caution everyone not to think, I am letting all that flow through the bottom line. We made a conscious decision that we are going to position ourselves in the best possible fashion we can for the long run. So I would say we are executing a both and strategy when it comes to those maturity, Ryan. We are -- by way of example let’s assume we have a five-year CD rolling off that I am going to pick up 150 basis points on interest -- for as an example.
As opposed to capturing that whole 150 basis points, we have asked the business to do is maybe capture 125 basis points and renew that CD into a seven-year or 10-year product instead of a five-year product. So, we are both lowering funding costs and pushing out the duration associated with that funding profile. So it’s a good perspective.
As it comes to margins specifically, I would say, look, I think, it will be up a little bit in the fourth quarter from the third quarter levels. I am not prepared to give guidance on where I think it’s headed in ’14 yet, but I guess I would clearly say that, given the environment we are in it clearly stays elevated well above that 8.5% to 9% long-term range. We have guided for out there for an extended period of time.
Ryan Nash - Goldman Sachs
Great. Switching gears to capital, you highlighted in the slide here, highest capital ratios in the industry and you also have been able to materially draw that down, just given the Fed is not allowing significant payout rate. I think you’ve been clear in past times you presented that 2014 is probably not going to be the year where we see a big drawdown in the capital base.
But could you just talk about from higher level, this is obviously your first time in CCAR, how are you approaching CCAR into 2014 and how are you just thinking more broadly about capital management be on this year of CCAR?
Yeah. With respect to the CCAR itself I would say, we’ve been a participant in the CapPR for the last several years which was the 11 smallest of the 30 largest banks. All the cases that are presented, all the stresses we run are essentially same between the CapPR and the CCAR . The big difference is, in the CCAR, you ship a lot of data off the Fed and they actually run their own models and conclude what your performance would be as well on that construct.
I feel like we’re well positioned in CCAR process. We talked about expenses earlier. I would tell you, Ryan, some of the expense base, I’ve not been shy about spending money to prepare for CCAR. And I think, the consequences of not doing well there are too great. There are number -- there are 19 firms out there who have been through this for several years running. And there are firms who have assisted them in that effort. For us not to leverage that expertise and avail ourselves so that learning would be crazy.
So we haven't been shy about spending the money to make sure we’re well-positioned to be there. So I feel very, very good about entering the process. Long-term outlook for capital and I think, I’ve been pretty transparent with the investor base and I'll be so again today. We readily stipulate we have more capital than we need.
We live in an environment where it’s a horizontal process being administered by the regulators. And I’m intellectually honest enough to admit that we and I think most institution have learnt something from that process as well.
But at some point in time, we expect there will be an ability to return more capital, would like to return more capital, as we prioritize it. And it's always been organically to play in its first, returning at second. There is very definable predictable returns in risk profiles associated with this too. And we live in an environment where that return is somewhat constrained. The great news is the crystal ball shows we can keep driving great returns on that capital despite having access levels out there.
If and when the opportunity presents itself, like I said it before on the record, if I could do it, I’ve returned 400 basis points capital to my investors tomorrow. It’s not where we are right now.
Ryan Nash - Goldman Sachs
And just in terms of priorities in near term, obviously as you said in the prepared remarks, scored back over 5% of your shares, your dividend is gone from $0.08 up to $0.80. How do we think about your priorities for mix for 2014?
Given the said guidance that 30% dividend payout ratios are still kind of the upper-end of the cones. I think if you're targeting a high payout ratio, a big chunk of that is going to come in the form of repurchases by definition. So what I would say is I think, I would like to find a way for us as the company to be a dividend achiever, where we can establish track record of moving that dividend. Obviously no commitment, no promises and I know a lot can happen between now and a board meeting, where we discuss such things.
So -- but I think, the conflict of being a dividend achiever is very appealing to us. And I think, repurchases though given the nature of the structure of the process right now are going to remain a piece of the puzzle sometime to come as well.
Ryan Nash - Goldman Sachs
Great. And I’ll now open up to the audience for questions.
Just following up on the question on underwriting standard. Why not relax, you have enough capital. Why not relax some a little bit, I’m just trying to understand why? Do you feel like you understand the elasticity of demand that it wouldn’t get you the sort of return that you want or it just a corporate philosophy that you don’t want to send the message that you’re compromising on credit, just not where you’re about. Can you just talk a little bit more about that?
Sure, I would say, its couple of things. First it’s I think, we understand the market, we understand. The lack of better we are putting it. So if you think about FICO scores, you can think about our FICO Scores along the X-axis of the graph and then bar charts by 10 basis point -- by 10 points bends, if you will. Most folks, that graph for their portfolio looks like a smile. Okay, they over indexed the lower end, they over indexed the higher-end and they have that kind of that barbell kind of strategy.
If you look at our portfolio, we actually look more like a mountain peak. We actually over index in the mid-grade FICOs between say 690 and 780, somewhere in that kind of range as we’re 760, kind of, were we over index. I think, my grading down significantly from where we play today. It’s a different business. Think about just economically.
The credit profile I think, we’re not comfortable necessarily, but even more importantly think about the economics of the business. That quality customer service I deliver that’s so important to striving that outstanding growth, that’s because we have all domestic call centers, they are multilingual but they are all domestic call centers.
There is a cost associated with doing that. You start migrating down spectrum and giving smaller credit lines, because the one thing you don’t want to do, if you start moving to lower FICO Scores is perhaps the same size credit lines. So now you have a smaller average client and a higher cost to service than the folks who specifically target these clients.
So even before you get into the question of -- from a credit perspective I’m I comfortable, the economics gets squeezed pretty quickly. So we are clearly positioned to deliver to the core customer we target. We understand that. We really are going to stick to that netting.
On the CCAR process, I understand you are going after that, the first time and right now. But looking at the CCAR last year, reapplying in the middle of the summer, is that something you might contemplate because as we all expect pretty well right now?
Yeah, I think what I would say is never say always and never say never, would be the way I respond to that one. I think we like optionality. We’ll keep all options on the table. The CCAR process actually is a -- it is a twice a year process. CCAR with the government running results at the end of the year. By mid-year, they used to de-faster. We still have to run the same process ourselves.
So you’re clearly doing all the work. So you would theoretically have the ability to make application in that process as well. So, I’m not telegraphing anything. I’m clearly not trying to connect to anything I want to be abundantly clearly about that. But the option to look mid-year clearly would be on the table. [Doug]?
How would you encourage us to think about the normalized 4%? I mean, we just had Jamie Dimons say that (inaudible) at your Investor Day. The 4.5% normalized level for them, looks like it’s going to be coming down. You’ve historically had at least 1% lower charge-off rate than J.P. Morgan have. And so given that we have the Codex, it looks like it structurally changed charge-offs, I mean how much level can that 4% go?
Yeah. When I alluded really to the fact that we are spending a lot of time on that as a team in preparation for our Investor Day, I would say we definitely are. From my perspective, getting to that 4% level, it’s hard to see right now given the environment given the book, how we get there in any reasonable period of time. So we are looking at our guidance in terms of how we’re going to start telegraphing to the market, what we are going to do there? So, I will say stay tuned on that one.
Ryan Nash - Goldman Sachs
Maybe one quick last question, a number of them.
Thanks. In your prepared remarks, you described bumps in the road with Diners Club, can you sort of describe some those bumps and what you are doing to smooth them?
Yeah, I think we’ve got -- if you thing about Diners, I would call it the tale of three cities, right. It’s a very strong brand in Asia. In the Americas, I would say it’s a very stable brand. You move to Europe and it’s a patchwork for the franchisees. And as liquidity has become harder to obtain Europe post the crisis, some of those franchisees have struggled a little bit. The good news is total Diners volume in the troubled franchisees is only about 5% of totals Diners volume overall. So it’s a very small piece of the overall volume.
We have stepped up when we’ve felt we’ve needed to, to support what I would call the capital after franchise value of the Diners brand, not necessarily to support the lower case at individual franchise level, would be the way to think about it. And if we see circumstances where we need to protect merchant acceptance, where we need to protect the value of the brand more broadly. As we begin transitioning these European franchises in the stable hands, we might do that.
I don’t see anything even remotely resembling the magnitude of what we dealt with the quarter or so ago. Just don’t see anything looking like that. Could there be another bump in the road here as we deal with the franchise or two along the way, yeah maybe. But nothing that would define who we are as an organization by long shot.
Ryan Nash - Goldman Sachs
Great. Please join me in thanking Discover.