Dive Brief:

• Card issuer Discover Financial Services has named Michael G. Rhodes as its next CEO and president, the company announced Monday. He will take the helm March 6, 2024.
• The company’s board appointed Rhodes to the role Dec. 7, Discover said in a Monday filing with the Securities and Exchange Commission. He was also named president of the Riverwoods, Illinois-based company’s subsidiary, Discover Bank, the filing said.
• Rhodes, 58, had been the group head for Canadian personal banking at TD Bank Group since January 2022, according to his LinkedIn profile. He joined TD Bank in 2011 to lead the North American credit card and merchant services business, and he has some 25 years of experience in financial services, Discover said in the release.

Dive Insight:

Rhodes’s base salary will be $1 million, Discover said in Monday’s filing. He will also receive an annual short-term incentive award target of $2 million, and a long-term incentive award target of $7 million, the filing said. 

Rhodes will also get a $750,000 transition award from Discover. Additionally, he will receive an equity award of up to $7.1 million in restricted stock units, and a cash award of up to $1.5 million, both in consideration of equity and cash compensation left on the table at TD, the filing said. 

TD Bank Group announced his resignation Monday, according to Reuters, which reported Rhodes was seen as a contender for the CEO post at that bank. 

Prior to his current role at TD, Rhodes was group head of innovation, technology and shared services at TD Bank Group from 2017 to the end of 2021, according to TD Bank’s most recent annual filing, and head of the consumer bank at TD Bank from 2015 to 2017. He’s also held senior leadership positions at Bank of America and MBNA America Bank, Discover said. 

The card issuer had been searching for a new CEO since former CEO Roger Hochschild resigned abruptly in August, after the company wrestled with compliance issues in recent years. During the company’s third-quarter earnings call in October, interim CEO John Owen said Discover was considering internal and external candidates.

Rhodes’ “extensive experience at large banks along with credit card/consumer background fits the criteria that (Discover) was looking for in a CEO as the company navigates through the regulatory/macro environment,” KBW Analyst Sanjay Sakhrani wrote in a Monday note to investor clients. “He also seemed to be progressing upwards at TD Bank,” which suggests Rhodes “was handling his responsibilities well,” Sakhrani wrote.

Rhodes will take the top post at Discover as the company sorts out a slew of regulatory issues and bolsters its compliance spending.

Discover reached a consent agreement with the Federal Deposit Insurance Corporation in September in connection with a consumer compliance probe at its subsidiary, Discover Bank. Discover also disclosed a card misclassification issue in July that affected merchants and merchant acquirers, and the SEC is investigating that issue.

The company has repeatedly run into regulatory trouble with its student loan business, and the company is now trying to sell its student loan portfolio.  

Discover is spending nearly $500 million on compliance and risk management this year, and CFO John Greene said last week he expects the company to spend that amount, or more, next year. The company aims to have dealt with most of the major compliance issues by the middle of 2024, Greene said.

While holding leadership roles at TD’s North American credit card and merchant services business, Rhodes helped elevate TD’s Canadian credit business from a ranking of sixth to first in the market, Mihir Bhatia, Bank of America research analyst, wrote in a Monday note to investor clients. 

“While we do not expect material shifts in (Discover’s) strategy, we do expect near-term focus to remain around compliance given the hiccups at Discover over the last few years,” Bhatia wrote. “Additionally, with the wind-down of the student loan business, we assume a focus on the card and network growth opportunities which fits well with Mr. Rhodes’ experience.”

Discover Chairman Tom Maheras is confident the company will continue “to advance its commitments to enhancing compliance, risk management and corporate governance” under Rhodes’s leadership, he said in the release.

The appointment follows “a comprehensive search,” Maheras said in the release. Rhodes is an experienced executive “who has worked in a variety of roles within the payments and banking industry around the globe.”

Rhodes will be appointed to the company’s board of directors and the bank’s board when he takes the CEO post, Discover said. Come March, Owen will remain on the boards of both the company and the bank, the filing said.