Discover Financial Services 8K The following slides are part of a presentation by Discover Financial Services (the "Company") and are | DFS 12 Jun 07

Investor

Presentation

June 2007

Exhibit 99.1

Notice

The following slides are part of a presentation by Discover Financial Services (the "Company") and are

intended to be viewed as part of that presentation. The presentation is based on information generally

available to the public and does not contain any material, nonpublic information. No representation is

made that the information in these slides is complete. The presentation has been prepared solely for

informational purposes, is neither an offer to sell nor the solicitation of an offer to buy any security or

instrument and has not been updated since originally presented.

The information provided herein may include certain non-GAAP financial measures. The reconciliation of

such

measures

the

comparable

GAAP

figures

are

included

the

Company’s

Registration

Statement

Form 10, as amended, which is on file with the SEC.

The presentation contains forward-looking statements. You are cautioned not to place undue reliance on

forward-looking statements, which speak only as of the date on which they are made, which reflect

management’s estimates, projections, expectations or beliefs at that time and which are subject to risks

and uncertainties that may cause actual results to differ materially. For a discussion of certain risks and

uncertainties

that

may

affect

the

future

results

the

Company,

please

see

"Special

Note

Regarding

Forward-Looking

Statements,"

"Risk

Factors,"

"Business

Competition,"

"Business

–

Regulatory

Matters"

and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the

Company’s Information Statement that is included as part of its Registration Statement on Form 10, as

amended, which is on file with the SEC.

The historical financial information included in the presentation has been derived from Morgan Stanley’s

consolidated financial statements and does not necessarily reflect what our financial condition, results of

operations or cash flows would have been had we operated as a separate, stand-alone company during

the periods presented.

David W. Nelms

CHIEF EXECUTIVE OFFICER

Roger C. Hochschild

PRESIDENT AND

CHIEF OPERATING OFFICER

Roy A. Guthrie

EXECUTIVE VICE PRESIDENT AND

CHIEF FINANCIAL OFFICER

Today’s Agenda

•

Transaction Summary

•

Business Overview and Strategy

•

Financial Overview

•

Q & A

Transaction Summary

Listing:

NYSE: DFS

Distribution Ratio:

1:2

March 31 Shares Outstanding

(1)

478 million

Distribution Timeline

Record Date:

6/18

Distribution Date:

6/30

Regular Way Trading Date:

7/2

Note:

(1)

Based on number of shares of Morgan Stanley common stock outstanding as of March 31, 2007. For purposes of EPS calculations, a substantial portion of the following additional equity

awards of DFS stock needs to be included:

(i) Conversion of Morgan Stanley restricted stock units and options held by active Discover employees,

(ii) Stock issued to Discover executive officers and other employees in connection with distribution,

(iii) Stock issued to directors.

Business Overview and Strategy

Investment Highlights

•

Unique franchise –

a leading independent card issuer and payments

network

•

U.S. card is a high margin, strong cash flow generator that is well

positioned for growth

•

Expanding payments business

•

Opportunity to turnaround U.K. credit card business

•

Extending direct financial services that leverage brand, capabilities and

large customer base

•

Well positioned to be stand alone company

–

Solid financial track record and capital position

–

Seasoned management team

Department of

Justice Ruling

PULSE

Acquisition

Third Party

Issuers and

Acquirers

Discover History

Discover Launch

•

No Annual Fee

•

Cashback Bonus

•

New Network

•

24/7 Customer Service

U.K. Card

Launch

Goldfish

Acquisition

(U.K.)

DWD IPO

out of

Sears

Merger with

Morgan Stanley

Credit Card Sales ($Bn)

Seasoned Management Team

2000/Citi

EVP, Discover Network

Harit Talwar

2003/American Express

SVP, Chief Credit Risk Officer

James V. Panzarino

1998/MBNA

EVP, Chief Technology Officer and

PULSE Network

Diane E. Offereins

2001/American Express

EVP, Cardmember Services and

Consumer Banking

Carlos Minetti

2004/Morgan Stanley

SVP, International

Charlotte M. Hogg

2004/McKinsey

EVP, Chief Marketing Officer

Mary

Margaret

Hastings

Georgiadis

1999/Morgan Stanley

SVP, General Counsel and Secretary

Kathryn McNamara Corley

2005/Citi

EVP, Chief Financial Officer

Roy A. Guthrie

1998/MBNA

President and

Chief Operating Officer

Roger C. Hochschild

1998/MBNA

Chief Executive Officer

David W. Nelms

DFS Start/Previous Employer

Title

Name

Card

Issuing

Credit

Debit

Discover

American

Express

Visa

MasterCard

First Data

Metavante

Citi

Bank of

America

JPM Chase

Capital One

Payments Networks

Unique Business Model

•

One of two card issuers that operates a

U.S. payments network –

only one with

both credit and debit capabilities

•

Discover’s network has supported the card

issuing business through:

–

Building Discover brand

–

Joint promotions with merchants

–

Operational efficiencies

•

Advantages in payments:

–

Broad offering for issuers (credit, PIN

and signature debit)

–

Leveraging largely fixed cost network

•

U.K. cards issued by

Goldfish bank

–

2MM cardmembers

–

$4.6Bn receivables

–

Operating on MasterCard

and Visa networks

•

PULSE and Discover

Network third-party

payments business

–

4,400+ financial

institutions

–

1.9Bn+ transactions

•

Discover cards issued on

Discover Network

–

largest issuer

–

50MM cardmembers

–

$45.7Bn receivables

–

4MM+ merchants

International Card

Third Party

Payments

U.S. Card

$5.7Bn Revenues

(1)

$1.6Bn PBT

$112MM Revenues

(1)

$29MM PBT

$405MM Revenues

(1)

($87MM) PBT

Note:

(1)

Sum of Net Interest Income and Other Income

Business Segments

2006 Results

•

Second largest credit

card market

•

High industry credit losses

challenging issuer

profitability

•

Regulatory actions

adversely impacting

interchange and card fees

•

Strong volume growth

especially debit

•

DOJ Ruling

•

MasterCard and Visa

convert to “for profit”

•

New markets and

technology

•

Large mature market with

modest growth

•

Industry consolidation

has occurred

•

Growing importance of

brand and rewards

•

Sophisticated marketing

and risk management

U.K. Cards

Payments

U.S. Cards

Grow U.S. Loans

and Profits

Expand Payments

Business

Turn Around U.K.

Business

Market Dynamics and Strategic Priorities

Strategic Priorities

U.S. Card

23%

38%

16%

36%

22%

18%

29%

12%

39%

71%

73%

55%

59%

80%

Discover

AMEX

BofA

Citi

JPM

Chase

Cap One

Notes:

(1)

2006 TNS Consumer Card Strategies Research Program

(2)

Master Trust Balances as of 1Q07

(3)

Excluding Discover and American Express

<2 Years

2 -

5 Years

> 5 Years

62%

44%

89%

56%

40%

76%

Income >50K

College

Graduates

Home Ownership

Demographic Profile

(1)

Portfolio Tenure

(2)

Discover

Other Issuers

Attractive and Stable Cardmember Base

•

Attractive cardmember demographics

versus average issuer

–

Higher income

–

More educated

–

Greater home ownership

•

High cardmember loyalty

–

Tenure longer than industry average

–

Attrition

half

industry

average

(3)

•

Cardmember base provides platform for

strong credit performance and cross-sell

30+

Day

Managed

Delinquency

Rate

(1)

Notes:

(1)

Discover fiscal year, all others calendar year

(2)

U.S. Card; company filings

(3)

Card Services; company filings

(4)

2003 combined BofA (Consumer Credit Card) and MBNA (Credit Card Loans), 2004-2005 North American Card Pro Forma, 2006-1Q07

U.S. Consumer and Business Card; company filings

Discover

JPM Chase

(3)

Capital One

(2)

BofA

(4)

2003

2004

2005

2006

1Q07

Strong Credit Quality

•

Since 2003, enhanced credit policies

and practices

–

Tightened underwriting standards

–

Enhanced account management

–

Leveraged state-of-the-art

databases and analytic tools

•

Strong credit quality

–

Lowest 30+ day delinquency rate in

10 years

–

Loan loss trends in line with leading

issuers

•

Continue focus on maintaining strong

credit quality

Unaided

Brand

Awareness

(1)

63%

62%

67%

69%

28%

25%

23%

15%

Visa

AMEX

Discover

Cap

One

Citi

JPM

Chase

BofA

Note:

(1)

GfK Arbor, January 2007

2006 Brandweek

Winners

Leading Brand

•

Discover is one of the leading brands

in financial services

–

Superior to bankcard issuers and

comparable to networks

–

Billions of consumer impressions at

point-of-sale

•

Only company to win Brandweek’s

“Customer Loyalty Award”

10 years in

a row

•

Strong brand creates distinctiveness

in saturated card market, positively

impacting new account acquisition

Direct Mail

Online

Telemarketing

Other

2006

New

Accounts

Channel

(1)

20%

54%

11%

15%

Diversified Acquisition Channels

•

While direct mail remains largest

acquisition channel, other channels

generate half of new accounts

•

Leveraging expertise across multiple

channels focusing on activation and

performance not just cost per account

•

Focus on continued growth in

cost-effective acquisition of new

accounts helps drive sales and

receivables

Note:

(1)

Excludes Student and Discover Business Card

Customer Satisfaction Rating

74%

71%

61%

58%

56%

52%

Discover AMEX

Citi

JPM

Chase

BofA

Cap One

Notes:

(1)

2006 Service Quality Measurement Group, Inc. (SQM) “World Class

Customer Satisfaction”

award

(2)

For the credit card industry by Keynote Systems, Inc. (2/06)

Leader in Customer Service

•

Discover ranked #1 for both customer

satisfaction

(1)

and online customer

experience

(2)

•

Industry leading customer service:

–

In-house/on-shore customer service

–

On-line services leadership

•

Leverage customer contacts to drive

cross-sell revenue and customer

retention

Source:

Phoenix

Marketing

AMS

Card

Reports

Study,

March

2006

–

Total

Affluent

Market

($250K+ investable

assets and/or $150K+ household income)

Notes:

(1)

Bear

Stearns,

Specialty

Finance

–

Credit

Card

Rewards,

January

2007

(2005

credit

card

spend)

(2)

Auriemma Consulting Group, Inc., April 2007

(3)

2006 TNS Consumer Card Strategies Research Program

Rewards Preferences

(2)

Household

Ownership

Cash

Rewards

Cards

(3)

Leader in Rewards

•

Rewards cards represent 77%

of industry credit card spend

(1)

•

Consumers overwhelmingly

prefer cash rewards

•

Discover is the pioneer and

leader in cash rewards with

50% market share

–

Customers earned over

$750MM rewards in 2006

–

70+ merchant redemption

partners

•

Rewards leadership position

drives higher customer

engagement, usage and loyalty

19%

15%

28%

53%

12%

Cash

Rebate

Retailer

Co-Brand

Airline

Mileage

Gas

Co-Brand

Auto

Rebate

Discover

JPM Chase

AMEX

Citi

Cap One

BofA

50%

15%

13%

12%

•

Up to 1% Cashback

Bonus

•

5% Get More program

with 15+ rotating

categories

Extend Leadership in Rewards

Motiva

Open Road

Miles

Business

•

Up to 1% Cashback

Bonus

•

Full month’s interest

back for 6 consecutive

timely payments, twice a

year

•

Up to 1% Cashback

Bonus

•

5% rewards on gas and

auto maintenance

•

Double Miles on travel

and restaurant

purchases

•

Unlimited miles that

never expire

(1)

•

Travel with no

restrictions including

airlines, hotels and

cruises

•

Redemption starting at

1,000 miles

•

5% Cashback Bonus

on office supplies, 2%

on gas

•

Also miles rewards

program option

•

Fee-free Purchase

Checks with rewards

•

Free employee cards

with real-time

customizable credit

limits

•

Categorized online

quarterly and annual

statements

•Redeem for up to double at 70+ merchant partners

•Unlimited

rewards

that

never

expire

(1)

•5% -

20% cash rewards online with over 40 top retailers

Note:

(1)

For active cardmembers

•

Payment Protection

•

Identity Theft Protection

•

Wallet Protection

•

Gift/Prepaid Cards

•

CDs

•

Money Market

•

Personal Loans

•

Other Consumer Lending

Expand Discover Branded Financial Products

•

Cross-sell to attractive, large credit

card base

•

Meet the needs of new customer

segments

•

Leverage brand, risk, marketing and

operational expertise

•

Diversify asset and funding mix

Payments

Post-DOJ Progress

Pre-DOJ

Acceptance

(Including

Partners)

Card Issuers

Owned Networks

Discover Payments

U.S. Issuers

China

Japan

Acquirers

China

Japan

77%

95-96%

100%

97%

92%

70%

Top 100 Retailers

Visa/MC Accepting

Merchants

Acceptance at U.S. Merchants

Sources:

(1)

Stores Magazine

and internal research

(2)

“A

National

Retail

Census

Product

Distribution:

Credit

Cards”

GfK

NOP,

Spring

2006;

based

random

sampling

approximately 1% of U.S. retail and service establishments

Opportunity

Visa/MasterCard

Discover

American Express

(1)

(2)

Current Acceptance

•

Discover has unsurpassed

acceptance with top 100 retailers, but

has acceptance gap with smaller

merchants

•

Objective is to significantly increase

small merchant acceptance

Top

Merchants

3rd

Party Acquirers

Direct

4MM+ Smaller

Merchants

4MM+ Smaller

Merchants

Non-Accepting

Merchants

Acceptance Expansion Strategy

•

Close acceptance gap by

outsourcing smaller merchant

pricing, processing and

servicing

•

Already 50%+ of volume share

under acquirer agreements

•

Implementation of acquirer

programs expected to be

largely complete within two

years

•

Improved acceptance expected

to increase cardmember usage

and balances

Network Transactions (Bn)

3.3

2.9

1.2

2004

2005

2006

DOJ

Visa/MasterCard

Ruling

Discover Network

PULSE

Build Payments Volume

•

Acquisition of PULSE (1/05)

positioned Discover to participate in

fast-growing debit market

•

Third-party issuer volume leverages

Discover Network’s largely fixed cost

infrastructure

•

Third Party Payments profitable after

just two years

International Card

$0.1

$0.8

$1.5

$2.1

$2.2

$2.6

$2.7

$4.6

1999

2000

2001

2002

2003

2004

2005

2006

1Q07

Managed Credit Card Receivables ($Bn)

Goldfish Acquisition

U.K. Card History

•

Launched in 1999

–

Cards issued on MasterCard

network

–

Visa added in 2006

•

Organic growth in receivables with

added scale from Goldfish and

Liverpool Victoria acquisitions (2006)

•

Primary brand shifting to Goldfish

(1%)

Other Expense

(4%)

Pretax Return on

Managed Receivables

+1%

Other Income

(1%)

Provision for Loan

Losses

+1%

Net Interest

Income

Breakeven

Requirement

1Q07

% of Managed

Receivables

U.K. Business Turnaround

•

The U.K. credit card market is

currently under stress

–

High bankruptcies/delinquencies

–

Regulatory pressure on

interchange and card fees

–

Yields lower than U.S.

•

Moving aggressively to eliminate

loss

–

Optimize APRs

–

Improve credit and collections

–

Increase net revenues

–

Reduce expenses

Segment Results and Objectives

•

9% Receivables Growth

•

$100MM

Revenues

(1)

•

($41MM) PBT

International Card

•

15% Transaction Growth

•

$31MM

Revenues

(1)

•

$12MM PBT

Third Party

Payments

•

6% Receivables Growth

•

$1.4Bn

Revenues

(1)

•

$401MM PBT

U.S. Card

1Q07

Results

Segment

Objectives

•

Complete rollout of acceptance strategy

•

Grow Transactions

15%+

•

Eliminate U.K. Loss

Note:

(1)

Sum of Net Interest Income and Other Income

•

Grow

Loans

–

•

Maintain Credit Quality

•

20%+ ROE

Financial Overview

Strong Financial Foundation for Growth

•

Long history of strong cash flow and ROE

•

Seasoned portfolio, stable underlying credit

•

Strong liquidity framework

–

Investment grade ratings

–

Adequate capacity to fund growth

–

Strong contingent liquidity sources

•

Established control systems in place

Strong Financial Performance

6.60%

6.00%

4.05%

5.23%

4.08%

2003

2004

2005

2006

1Q07

Managed Net Charge-off Rate

$1,077

$234

$578

$776

$649

2003

2004

2005

2006

1Q07

ROE

14%

18%

13%

19%

15%

Managed Receivables (Bn)

$50.4

$50.8

$48.3

$48.4

$46.9

2003

2004

2005

2006

1Q07

3.18%

2.95%

5.39%

3.90%

5.04%

2003

2004

2005

2006

1Q07

Managed

Cost

Funds

(1)

Net Income (MM)

Notes:

(1)

Total credit card loans managed interest yield less managed interest spread

Managed Income Statement

Segment Results

Note:

(1)

PULSE acquired in January 2005

Note:

(1)

National Bankruptcy Research Center

2005–2007 Quarterly Analysis

•

2007 quarterly comparisons (Y/Y)

difficult due to bankruptcy

legislation (10/05)

•

4Q05 contained significant

bankruptcy-related charges

–

I/O strip write down

–

Reserves added

•

1Q06 received significant

bankruptcy related benefits

–

I/O strip write up

–

Reserves released

•

Remainder of 2006 bankruptcy

filings remained low

•

4Q06 included benefit of tax

settlements

Spin-off Related Impacts

One–time

2Q07 –

3Q08

TBD

Spin-off Related Costs

Ongoing after transition

3Q08 and beyond

$30-$40/Year

Morgan Stanley Allocations

Net Savings

4 years

(Decreasing over time)

3Q07

–

3Q11

($51)/Year

Compensation Expense

Ongoing

3Q07 and beyond

($65)/Year

Stand-alone Funding/Liquidity

Nature

Timing

Impact

Fav/(Unfav)

(MM)

40%

52%

Contingent Liquidity Sources at

Spin (Pro Forma)

Funding

Note:

(1)

Pro Forma balance sheet with addition of asset-backed borrowings

$5Bn+ Cash Liquidity Reserve

$2.4Bn Unused ABCP

Conduit Facilities

$2.5Bn Multi-year Unsecured

Committed Credit Facility

Total Managed Funding at

2/28/07

(1)

External Secured Borrowings

ABS (Term and Private)

Deposits

Other Borrowings

$53.1Bn

Notes:

(1)

Excludes goodwill and intangible assets

(2)

Net of allowance for loan losses

Capitalization

Key

Capital

Drivers

•

Underlying risk of business

•

Maintain well capitalized

status at the bank

•

Rating agencies

Capital Generation

Note:

(1)

Net Income divided by beginning stockholder’s equity

15%

20%

14%

23%

2003

2004

2005

2006

17-18% Average

(4-8%)

Target Growth in U.S.

Card Receivables

~9-14%

Available for

Investment/

Dividends/Stock

Repurchases

Pro Forma Capital $5.4Bn

Capital Generation

(1)

•

It is management's

intention to recommend

to our board of directors

that Discover pay a

regular cash dividend

Key Assumptions for 2nd Half of 2007

•

2006 earnings were elevated by low bankruptcies and favorable tax

settlements

•

Continued growth in U.S. Card sales and receivables

•

Loan losses expected to gradually increase as bankruptcies return to

more normal levels

•

Spin-off related impacts

Investment Highlights

•

Unique franchise –

a leading independent card issuer and payments

network

•

U.S. card is a high margin, strong cash flow generator that is well

positioned for growth

•

Expanding payments business

•

Opportunity to turnaround U.K. credit card business

•

Extending direct financial services that leverage brand, capabilities and

large customer base

•

Well positioned to be stand alone company

–

Solid financial track record and capital position

–

Seasoned management team

Discover Financial Services (DFS) 8-KThe following slides are part of a presentation by Discover Financial Services (the "Company") and are