Discover Financial Services’ CEO Roger Hochschild resigned abruptly on Sunday, after the card issuer grappled with multiple regulatory issues over the past year.
A board member has taken the post on an interim basis, and the company will hold a business update call on Thursday.
On Sunday, Hochschild, also president of the company, submitted his resignation to Discover’s board, effective Monday, according to a filing with the Securities and Exchange Commission. Hochschild also vacated his position on Discover’s board.
Board member John B. Owen has been appointed interim CEO and president of the Riverwoods, Illinois-based company, as well as interim president of its bank. Owen will continue serving on the board, but is resigning from the board’s risk oversight committee during his time in the interim roles.
Hochschild, 58, will continue to be employed by the company as an adviser to the chairman of the board through Dec. 31, according to the filing. To find the company’s next CEO, the board has formed a special search committee and has tapped a global executive search firm, the release said.
“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,” Discover’s board chairman, Tom Maheras, said in a press release regarding Hochschild’s departure. “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.”
The company didn’t provide any further explanation for the sudden CEO exit, and a company spokesperson declined to comment on Hochschild’s resignation. Hochschild had been Discover’s CEO since 2018; prior to that, he had been the company’s president and chief operating officer since 2004, according to the company’s most recent proxy filing.
While Hochschild will be paid his salary through the end of the year, he will exit without receiving severance and he won’t be eligible for certain additional incentive and equity compensation, the filing said.
Owen, who has about 38 years of experience in banking and IT, was elected to the board in June 2022, according to the filing. From 2018 to 2021, he was chief operating officer at Regions Financial Corp. Owen “has a clear understanding of the overall governance structure associated with a highly regulated industry such as banking,” Discover said in the Monday filing.
“We suspect the near-term focus will be on beefing up (Discover’s) compliance function so the new CEO can focus on growth,” Bank of America Securities Analyst Mihir Bhatia wrote in a Monday note to investor clients.
As interim, Owen will receive an annual base salary of $950,000, and a special stock award valued at $500,000, according to the filing.
J. Michael Shepherd was appointed to Discover’s board, effective immediately, and will serve on the board’s risk oversight committee, the filing said. Shepherd, an attorney and former BancWest CEO, has “deep experience in the areas of compliance, risk management and corporate governance,” according to a news release.
Discover has disclosed multiple compliance issues over the past 13 months, and there’s a good chance those issues were connected to Hochschild’s departure, Oppenheimer & Co. Analyst Dominick Gabriele said Tuesday.
“Compliance issues have spread to a companywide problem vs. starting and remaining in student loans,” Gabriele said in a Tuesday email. “Given the CEO’s staying power prior to compliance revelations, it seems logical compliance issues likely played a part in the search for a new CEO.”
In July, the company said it received a proposed consent order from the Federal Deposit Insurance Corp. in connection with consumer compliance. The probe “is broadly around our compliance management system,” and could result in additional supervisory actions, Hochschild said when the company reported second-quarter earnings last month.
Separately, the company in July disclosed a pricing error unrelated to the FDIC probe, but Hochschild said the fact that it wasn’t connected to the probe didn’t mean the pricing error wouldn’t result in further regulatory action.
One year earlier, Discover disclosed an internal investigation of the company’s student loan servicing practices and “related compliance matters.” That concluded last November, although the company said it continued to communicate with regulators regarding the investigation and may be subject to reviews, investigations or other actions related to its student loan servicing.
The company is now investing more in compliance, increasing spending in that area by about $250 million since 2019, Discover CFO John Greene said last month. Hochschild told analysts last month that, in retrospect, he believes the company wasn’t investing enough in compliance.
“That’s something I take accountability for, but we are very focused on it now,” Hochschild told analysts.
The transition agreement also notes, at Discover’s request, Hochschild “shall assist and advise the Company in any investigation which may be performed by the Company or any government agency and any litigation in which the Company may become involved,” including making himself available for interviews by the company or its counsel, depositions or court appearances, the filing said.
The special search committee and Hochschild’s transition role through the end of the year suggest the company’s core strategy isn’t changing with the CEO departure, Bhatia wrote in his note to investors.
Still, “coming on the heels of compliance issues we think investors will likely want more information around the CEO transition to gain comfort with the situation,” Bhatia wrote.