Discover to Take Up to $31 million Charge for Subprime Mortgage Investment

Credit card issuer Discover Financial Services said Thursday that it will be taking another writedown on a $120 million investment it made in a structured investment vehicle backed by mortgage loans.

Discover (NYSE: DFS) said in a press release that for its fiscal quarter ended May 31, it anticipates a writedown in a range from $18 million to $31 million pretax, or $11 million to $19 million after tax. The company had already reported an $11.4 million writedown in its quarter ended November 30, 2007.

The company said that the initial investment of $120.1 million was in asset-backed commercial paper notes of Golden Key U.S. LLC based in the Cayman Islands. Discover said that Golden Key had invested in mortgage-backed securities.

The credit card issuer noted that this was the only investment of its kind that Discover has invested in.

The company expects that the investment will be restructured by the issuer in the third or fourth quarter of 2008. A restructuring or further deterioration in market conditions could result in further impairment.