Discover agrees $775m M Stanley settlement

Discover Financial Services has agreed to pay its former parent, Morgan Stanley, $775m to settle a dispute over how the companies would split the proceeds from another legal tussle.

Morgan Stanley had sued Discover in October 2008 to collect its slice of the $2.75bn settlement the US credit card operator had reached in antitrust litigation against rivals Visa and MasterCard.

Last month, a New York judge ruled that Morgan Stanley was entitled to the $775m. Discover declined to appeal against the decision. Their agreement also ends counterclaims the company had made against Morgan Stanley, Discover said in a US regulatory filing. “We are delighted with the outcome,” a Morgan Stanley official said.

Morgan Stanley spun off Discover in 2007 to sharpen its focus on investment banking, trading, asset management and retail brokerage businesses. As part of its spin-off deal, the bank had maintained a claim on as much as $1.5bn in pre-tax proceeds that the credit card business might collect from its then-unresolved antitrust case against Visa and MasterCard.

Morgan Stanley had sued the card operators for preventing banks from issuing Discover cards after officials at the US Department of Justice had alleged their actions had violated antitrust regulations. Both Visa and MasterCard settled with Illinois-based Discover in 2008. Discover then refused to pay Morgan Stanley, arguing that its former parent had interfered with the antitrust settlement discussions.

A former finance arm of the US retailing group Sears Roebuck, Discover had been hatched by Phil Purcell, who later ran Morgan Stanley. Sears folded the business into Dean Witter, a brokerage, and spun off the combined company to shareholders in 1993.

Mr Purcell, then chief executive of Dean Witter Discover, merged his company with Morgan Stanley in 1997. Shortly before being ousted as Morgan CEO, Mr Purcell had unveiled plans to spin off Discover. His successor, John Mack, reversed them, then reconsidered.

Morgan Stanley’s shares fell 0.04 per cent to close at $27.16 on Friday . Discover fell 0.01 per cent to $13.03.