Barclays Capital Financial Services Conference Roy Guthrie Executive Vice President, Chief Financial Officer May 6, 2009 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. No representation is made that the information in these slides is complete. The information provided herein may include certain non-GAAP financial measures. The reconciliations of such measures to the comparable GAAP figures are included in the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2009, and the Company’s Annual Report on Form 10-K for the year ended November 30, 2008, which are on file with the SEC and available on the Company’s website at www.discoverfinancial.com. 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 of the Company, please see "Special Note Regarding Forward-Looking Statements," "Risk Factors," "Business – Competition," "Business – Supervision and Regulation" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended November 30, 2008, and “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2009, which are on file with the SEC. Certain historical financial information about the Company that we have included in this 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. We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the operation of our business, including, but not limited to: Discover®, PULSE®, Cashback Bonus®, Discover® Network and Diners Club International®. All other trademarks, trade names and service marks included in this presentation are the property of their respective owners. 2 |
3 Company Overview (1) • Leading cash rewards program • 6 th largest U.S. issuer • Over $49Bn in managed receivables • $109Bn volume • 4,500+ issuers • $28Bn deposit base • $1.8Bn personal and student loans • $100Bn volume • 30+ issuers Note(s): 1. Balances as of February 28, 2009; volume based on the trailing four quarters ending 1Q09 2. Includes volume prior to acquisition • $27Bn volume (2) • 49 licensees • 185 countries/territories |
4 Broaden consumer relationships Build global network Further strengthen foundation Acceptance DFS Volume • Discover Card • Third-Party • U.S. acceptance • Diners Club • PULSE Discover’s Strategy DFS Financial wallet share Card wallet share • Brand preference • Products/features • Customer experience • Prime lending • Deposits People/ culture Expense base Funding/ capital |
5 Manage conservatively in a challenging environment • Superior credit performance vs. competitors • Conservative loan growth • Increase net interest margin and revenues • Reduce expenses • Focus on capital/liquidity/funding Build for the future • Continue to grow direct-to-consumer deposit business • Leverage Discover brand and leading Rewards program • Increase acceptance to drive higher sales and card utility • Grow and integrate Diners Club/PULSE/Discover networks • Remain conservative on liquidity and capital Performance Priorities |
6 Discover Card: Controlled Growth and Differentiated Credit Quality Managed Card Receivables Growth 2005-2008 CAGR Managed Net Charge-off Rate – 1Q09 3.0% 3.3% 6.2% 9.9% 10.2% 1.9% DFS COF BAC C AXP JPM 6.6% 7.7% 8.4% 8.5% 8.9% 9.2% DFS JPM COF AXP C BAC Note(s) 1. Quarter ending February 28, 2009; U.S. credit card receivables 2. Card Services segment 3. U.S. Card 4. Citi Branded Cards Note(s) 1. Based on calendar year 2. Global Cards segment 3. Credit Cards segment (includes U.S. and international consumer cards, excludes business cards); pro forma of BAC and MBNA (MBNA acquired in 1Q06) 4. Global Consumer Cards segment 5. Worldwide Lending 6. Card Services; includes WaMu portfolio acquisition (4.4% growth excluding WaMu) (2) (6) (3) (4) (5) (1) (3) (3) (3) (4) (2) (1) |
7 Customer Profile Demographic Profile Source 2008 TNS Card Research 73% 88% 44% 43% 68% 82% 33% 37% Married Homeowner College Graduate Income > $75K Discover Other Issuers Rewards • Highest levels of customer satisfaction • Highest stated intent to keep primary Customer Satisfaction Loyalty • Leader in cash rewards • Highest household ownership of cash rewards cards • Longest cardholder retention • Among highest to recommend Source TNS State of Card Market Report, 2008 |
8 44% 22% 16% 14% 7% 6% DFS JPM C AXP BAC COF 6% 4% 4% 4% 82% Cash Points Gas Airline Miles Other Cash Rewards Reward Preference (1) (%) Cash Rewards Market Share (2) Note(s) 1. Percent that chose reward type “I like a lot” over all other types (ties included) 2. Household ownership of cash rewards cards; percentages add to more than 100% due to household use of multiple brands Source Millward Brown 2008 A&U Source 2008 TNS Consumer Card Research |
9 DFS Portfolio Positioning 79% 73% 60% 58% 46% 55% DFS C BAC AXP JPM COF 10% 13% 12% 15% 14% 17% 6% 6% 7% 8% 9% 16% 18% 19% 22% 26% 6% 22% DFS JPM COF C BAC AXP Florida California Geography (1) Tenure (1) Source: 1. Master Trust Receivables; Trust Data as of: Discover: May-08, Citi: Mar-08, BoA: Mar–08, AMEX: Aug-08, Chase: Sep-08, Capital One: Mar-08 2. Internal Data Rent, Other 20% Own Outright 26% Mortgages 54% ARM Non- Prime 4% ARM Prime 14% Fixed Non- Prime 7% Fixed Prime 75% Mortgage (2) Homeownership (2) |
10 0% 50% 100% 150% 200% Unemployment and Underemployment Rates Current Environment Source Bureau of Labor Statistics; recessions shaded Source The Conference Board Consumer Confidence 0% 4% 8% 12% 16% Unemployment Unemployed plus Underemployed (Persons Working Part-Time due to Economic Reasons) |
11 Economic Stress Unemployment Rate – By State March 2008 March 2009 4% to 5% 5% to 6% 6% to 7% 7% to 9% 9% to 11% >11% Unemployment Rate Source Bureau of Labor Statistics |
12 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 DFS (FY) Industry Strong Relative Credit Performance Source Company Filings Managed Net Charge-off Rate Managed Net Charge-off Rate – YOY % Note(s) 1. Includes most relevant reporting segments of JPM, C, BAC, COF and AXP -60% -40% -20% 0% 20% 40% 60% 80% 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 DFS (FY) Industry Source Company Filings (1) (1) |
13 Loan Loss Provisions Total Provision Change (MM) 113 165 $582 $754 $1,106 $1,334 829 595 641 691 300 339 (14) 115 2Q08 3Q08 4Q08 1Q09 Net Charge-offs Reserve Build ABS Maturities Loss Guidance Update • 2Q09 managed charge-off rate estimated to be approximately 8% • Will continue to build reserves reflecting credit conditions (1) Note(s) 1. ABS maturities funded on-balance sheet |
14 2005 2006 2007 2008 $143 $163 $186 $221 10.2% 1.7% 2.4% NM 2005 2006 2007 2008 Network Volumes and Profit Contribution CAGR = 16% Note(s) 1. Not meaningful; Discover Third-Party Payments had a loss in FY2005 Network Volumes (Bn) Third-Party Payments PBT as % of DFS Total (1) |
15 Network Interoperability Targets Global ATM acceptance for Diners Club cards 2009 Diners Club cards accepted at Discover Network locations in North America 2010 2011 Discover Network cards live in international markets |
16 Funding and Liquidity Funding Mix (%) Contingent Liquidity (Bn) 5.1 8.3 2.4 1.5 2.5 2.4 4.5 $16.7 $10.0 June 07 Spin-off 1Q09 Fed Discount Window Committed Credit ABCP Open Lines Liquidity Reserve 54% 41% 35% 39% 5% 13% 7% 6% June 07 Spin-off 1Q09 Other Direct-to-Consumer Deposits Brokered Deposits ABS (1) Note(s) 1. $750MM will expire in each of the second and third quarters of 2009 |
17 Deposits Period End Balances (Bn) Note(s) 1. Deposits sourced through broker dealers and sweeps programs 2. Includes deposits originated through affinity relationships Brokered and Direct-to-Consumer (2) (1) 20.9 22.1 22.3 21.3 3.8 4.8 6.1 7.0 $24.6 $26.9 $28.5 $28.3 2Q08 3Q08 4Q08 1Q09 Total Brokered Deposits Total Direct-to-Consumer |
18 8.8% 6.4% 4.8% DFS AXP COF Capital Ratios – 1Q09 Tangible Common Equity to Tangible Managed Assets Tier 1 Capital Ratio 11.4% 14.8% 17.1% DFS AXP COF Note(s) 1. Derived from company reports (1) Note(s) 1. Discover pro forma at 2/28/09 includes TARP CPP funds of $1.2Bn received in 2Q09 (1) |
19 Actions to further strengthen our balance sheet • Reserve additions • Dividend reduced to $.02 per share • Capital Purchase Program proceeds in 2Q09 • Antitrust litigation settlement proceeds Build for the future • Continue to grow direct-to-consumer deposit business • Leverage Discover brand and leading Rewards program • Increase acceptance to drive higher sales and card utility • Grow and integrate Diners Club/PULSE/Discover networks • Remain conservative on liquidity and capital 2009 Outlook |
Barclays Capital Financial Services Conference Roy Guthrie Executive Vice President, Chief Financial Officer May 6, 2009 |