Discover sells Goldfish to Barclays at big loss

By Jonathan Stempel

NEW YORK (Reuters) - Discover Financial Services (DFS.N: Quote, Profile, Research) said on Thursday it agreed to sell its Goldfish credit card unit in Britain to Barclays Plc (BARC.L: Quote, Profile, Research) for $70 million, abandoning a money-losing business it bought two years ago for $1.68 billion, as consumer credit worsens.

Barclays will acquire 1.7 million Goldfish and affinity card accounts with about $4 billion (2 billion pounds) of receivables, and take on Goldfish's brand, staff and facilities. The card business includes MasterCard and Visa.

Discover, the fourth-largest credit-card network, will take a first-quarter charge of $190 million to $210 million and said the sale should improve earnings for the rest of the year.

"While we have begun to see important progress in our UK business, the funding and operating environment there continues to be a challenge," Chief Executive David Nelms said.

The company lost $56.5 million in its fourth quarter ending November 30, as it wrote down substantially all of Goldfish's goodwill and other intangible assets. Discover had on December 20 reported an $84.1 million loss, but revised that number in a late Thursday regulatory filing to adjust some tax benefits.

Other lenders also have struggled in Britain with mounting consumer credit losses.

Last week, Citigroup Inc's (C.N: Quote, Profile, Research) British Internet bank Egg said it would cancel 161,000 customers' credit cards because the credit profiles of those customers had deteriorated.

Riverwoods, Illinois-based Discover expects the Goldfish sale to close by the end of May, pending regulatory approval, and will allow it to focus on its profitable U.S. card and third-party payments businesses.