Discover takes over Allstate's banking business
Allstate Corp., the largest publicly traded U.S. home and auto insurer, is exiting the banking business and will sell about $1.1 billion in deposits to Discover Financial Services as regulators increase scrutiny of the industry.
Discover will provide savings accounts, certificates of deposit and money-market products to Allstate customers, the Northbrook-based insurer said today in a statement.
Allstate, regulated by state insurance commissioners, has been subject to additional oversight by the Office of Thrift Supervision because of its banking business. The Fed will be taking greater authority over the financial industry after the passage of the Dodd-Frank Act last year.
Allstate Chief Executive Officer Thomas Wilson met in October with representatives of the Federal Reserve Bank of Chicago for a discussion on changes in regulation. Wilson has focused the Allstate Financial unit on life insurance and retirement and investment products.
“That, combined with the changing regulatory environment, led us to the determination that operating Allstate Bank is no longer core to our long-term strategy,” said Matthew Winter, CEO of Allstate Financial, in the statement.
Discover climbed 34 cents to $21.47 as of 4 p.m. in New York Stock Exchange composite trading, its highest since Oct. 12, 2007. It has gained 68 percent in the past year. Allstate rose 68 cents to $32.56, its highest in more than three months.
Discover CEO David Nelms is using acquisitions to diversify revenue and augment the credit-card business. Last month, the firm purchased Student Loan Corp. from Citigroup Inc. The deal may help Discover make more credit-card loans to the 300,000 new customers of its expanded student-loan business.
“They've been trying to reduce their reliance on securitization funding and been growing their direct-to-consumer bank,” said Michael Taiano, an analyst at Sandler O'Neill & Partners LP, who has a “hold” rating on Discover.
Allstate and Riverwoods-based Discover both trace their roots to retailer Sears Roebuck & Co. Terms of the deal weren't disclosed and aren't “material,” Allstate said.