NEW YORK (AP) — Discover Financial Services said yesterday it returned to profitability during its fiscal fourth quarter, thanks to a legal settlement, but is nevertheless trying to get funding from the government. Its shares rose about 14 percent.

Without the lawsuit settlement gain during the fiscal fourth quarter, the credit card lender would have had a loss due to rising defaults and delinquencies. Nearly all lenders are seeing more customers stop making their monthly payments as home prices tumble and unemployment surges.

Because the credit climate keeps deteriorating with no end in sight, Discover — like its larger counterpart, American Express Co. — is applying to become a bank holding company and get government funding to support its lending efforts, the card issuer said yesterday.

"We will continue to operate in a very difficult environment in 2009," CEO David Nelms said during a conference call with investors, noting that next year's unemployment rate will largely determine consumer credit losses. Discover decided to apply for government funding to take the most "conservative approach", Nelms said, and to give the company "additional liquidity, additional options, and maximum participation in government programmes".

If Discover, which already has deposits, is approved as a bank holding company, it could get between $400 million and $1.2 billion in government financing — or one to three percent of $40 billion in risk-weighted assets, officials said.