Citi Financial Services Conference Presentation

Investor

Presentation

Citi Financial Services

Conference

January 29, 2008

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 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.

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

such

measures

the

comparable

GAAP

figures

are

included

the

Company’s

Registration

Statement

Form

10,

amended,

the

Company’s

Form

10-Q

for

the

Quarter

2007

and

the

Company’s

Quarter

Earnings Release furnished on Form 8-K dated December 20, 2007, each of 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,

and

the

Company’s

Form

10-Q

for

the

Quarter

2007,

each

which

file

with

the

SEC.

The historical financial information prior to the Company’s spin-off from Morgan Stanley 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 such periods presented.

David W. Nelms

CHIEF EXECUTIVE OFFICER

Today’s Agenda

•

Business Overview and Results

•

Segment Review

•

Capital Management

•

Conclusion

•

U.K. cards issued by

Goldfish Bank

–

$4.4Bn receivables

–

Operating on MasterCard

and Visa networks

•

PULSE and Discover

Network third-party

payments business

–

4,500+ financial

institutions

–

3.8Bn transactions

–

$91.7Bn network volume

•

Discover cards issued on

Discover Network

–

largest issuer

–

$48.2Bn receivables

–

largest U.S. merchant

network

International Card

Third Party

Payments

U.S. Card

Business Segments and Objectives

•

Grow third-party credit

and debit volume 18%+

•

Eliminate U.K. Loss

•

2.9% pretax ROMR

•

Maintain credit quality

•

Grow loans 4% –

Objectives

•

Complete rollout of acceptance strategy

Note(s): All data as of November 30, 2007; full year results where applicable and receivables data on a managed basis

Performance Against Objectives

Objectives

U.S. Card

•

2.9% pretax ROMR

•

Maintain credit quality

•

Grow loans 4 -

Third-Party Payments

•

Grow credit and debit volume 18%+

International Card

•

Eliminate loss

4Q Results

(1)

28% volume growth

Turnaround actions being

implemented

2.8% pretax ROMR

3.84% charge-off rate

3.59% 30+ day delinquency

5% growth

Note(s):

(1)

Managed

basis

Prime Account Generation, Seasoned Customer Base

80%

72%

66%

57%

53%

43%

Discover

Citi

AMEX

BofA

Chase

Capital

One

Note(s):

(1)

Latest Master Trust balances as of 1/23/08; based on receivables

(2)

Weighted average tenure of the receivables that are assets of the Chase Issuance Trust

> 5 Years

Average FICO Score on

New Accounts

Portfolio Tenure

(1)

734

738

737

734

100

200

300

400

500

600

700

800

2004

2005

2006

2007

(2)

Lower Exposure in Difficult Housing Markets

•

Prime credit origination

•

Targeted geographic &

marketing criteria

•

Enhanced collections & credit

management / in-house capabilities

•

Focused on retention and growth

from base

Risk Mitigation Strategies

12%

15%

13%

17%

15%

18%

21%

22%

25%

Discover

Capital

One

Chase

Citibank

Bank of

America

American

Express

California

Florida

Source: Latest Master Trust data as of 1/23/08

Note(s):

(1)

represented by Chase’s CHAIT Master Trust

(1)

Distribution of Receivables

2004

2005

2006

1Q07

2Q07

3Q07

4Q07

Discover

Chase

Capital One

AMEX

BofA

Strong Relative Credit Performance

Note(s):

(1)

Discover fiscal year, all others calendar year

(2)

U.S. Card

(3)

Card Services

(4)

U.S. Consumer and Business Card

(5)

4Q07

based on earnings pre-release announced 1/10/08

Source: SEC Filings

2004

2005

2006

1Q07

2Q07

3Q07

4Q07

Discover

Citigroup

Chase

Capital One

AMEX

BofA

(2)

(2,5)

(2)

(4)

Managed 30+ Day Delinquency Rate

(1)

(2)

(3)

(2)

(4)

(2,5)

Managed Charge-off Rate

(1)

•

Rising unemployment

•

Regional weakness in housing

•

Slower retail sales growth

U.S. Credit Outlook

Fiscal 2008 Outlook

•

Higher fee income

•

Lower funding costs

•

Lower expense ratio

Offsets

•

Estimated full year Discover Card

charge-off

rate

4.75%

–

5.00%

(1)

Note(s):

(1)

Managed

basis

U.S. Card Profitability Through Prior Cycle

Note(s): Managed basis

10%

2000

2001

2002

2003

2004

2005

2006

2007

Net Interest Margin

Pretax Return on Loan Receivables

Net Charge-off Rate

Prior cycle peak loss rate

Charge-off and Funding Cost Drivers

Note(s):

U.S.

Card

–

Managed

basis

30+ Day Delinquency Rate

1-Month LIBOR

2000

2001

2002

2003

2004

2005

2006

2007

5.4%

5.1%

2006

2007

Operating Cost Ratio

(1)

Expense Control

•

Progress in 2007 despite

charges for:

–

Spin-Off

–

Visa/MC litigation

•

Committed to reducing

operating cost ratio in 2008

–

Separation savings

–

Efficiency initiatives

Note(s):

(1)

Non-interest

expense

Total

Average

Loans;

U.S.

Card

–

Managed

basis

U.S. Receivables Growth

-5%

10%

15%

20%

25%

2004

2005

2006

1Q07

2Q07

3Q07

4Q07

Discover

Chase

(2)

Capital One

AMEX

BofA

(3)

Citi

Note(s):

(1)

U.S. Card unless otherwise noted

(2)

Card

Services

(3)

U.S. Consumer and Business Card

Managed Receivables (YOY)

(1)

Source:

SEC

Filings

Differentiators For Profitable Growth

607

617

651

652

728

735

AMEX Discover

Citi

Chase

Capital

One

BofA

41%

15%

16%

22%

18%

16%

18%

16%

15%

17%

20%

25%

27%

26%

24%

43%

47%

41%

35%

4Q06

1Q07

2Q07

3Q07

4Q07

Discover

Chase

HSBC

Other

Cash Reward Mail Share

Unaided Issuer Brand Awareness

Customer Satisfaction

•

Brand and service advantage

vs. Visa/MasterCard issuers

•

Leading position in cash

rewards marketing

Source:

2007 J.D. Power Card Satisfaction Index

Source:

GfK

Arbor,

January

2007

Source:

Comperemedia

15%

23%

25%

28%

62%

63%

AMEX

Discover

Capital One

Citi

Chase

BofA

~100%

Large

Merchants

Small

Merchants

Merchant Acceptance

% of Visa/MasterCard Merchants

New Acceptance Strategy

Note(s):

(1)

“A

National

Retail

Census

Product

Distribution:

Credit

Cards”

GfK

NOP,

Spring

2006;

based

random

sampling

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

(1)

~77%

party

acquirer

opportunity

Sample Third-Party

Acquirers Signed

Third-Party Acquirer Timeline

2005

2009

Internal

Systems/Operations

Sign 3

Party

Acquirers

2006

2007

2008

Implementation

Optimal Acceptance Model

Leverage acquirer scale

and coverage

Economics similar to Visa

and MasterCard

Network

Interchange

Acquirer assessments

~30% of volume

~85% of outlets

Indirect through acquirers

Outsourced Merchants

Retained Merchants

Joint marketing opportunities

Direct relationships and scale

provide efficiencies

Advantages

Network and acquiring

Expenses

Merchant discount

Merchant fees

Revenue

~70% of volume

~15% of outlets

Mix (target)

Direct

Relationship

New Model Payoff:

Higher Discover Card spend and balances

Greater appeal for third party issuers

1Q07

2Q07

3Q07

4Q07

Network Progress

Discover Network

PULSE

Third-Party Network Volume (Bn)

$24.5

$23.9

$21.2

$22.1

YOY

+28%

Discover

Network

(Proprietary)

$93.8Bn

Discover

Network

(Third Party)

$5.5Bn

PULSE

$86.2Bn

2007 Total Network Volume

PULSE

Primary Sources of Revenue

•

Switch fees for ATM, PIN POS and

signature debit transactions

•

Participation fees, connectivity fees,

and other product fees

Sample Issuers

Key Facts

•

Third

largest

debit

network

(1)

•

Over 4,500 issuers

•

Past 4 quarters: 2.3 billion transactions

•

25% volume growth 4Q07 vs. 4Q06

Value Proposition

•

A leader in U.S PIN POS acceptance

•

Highly competitive interchange

•

Leading issuer services

•

Broad product line

Note(s):

(1)

ATM & Debit News, EFT Data Book 2008 Edition

Discover Network

Primary Sources of Revenue

•

Merchant discount/acquirer

interchange

•

Issuer assessments and fees

Sample Issuers

Key Facts

•

One of only four U.S. signature networks

•

20+ issuers

•

2007 volume

–

$93.8 billion Discover Card

–

$5.5 billion third-party issuers

Value Proposition

•

Strong brand choice

•

Competitive interchange and

assessments

•

Robust product suite and acceptance

•

Unique marketing programs/features

•

Flexibility and ease of implementation

International Acceptance Partnerships

•

Long-term reciprocal

acceptance agreement signed

in May 2005

•

#1 network in China

•

70% better acceptance than

Visa/MasterCard in China

•

Long-term reciprocal

acceptance agreement signed

in August 2006

•

Leading global payment brand

based in Japan

•

Similar acceptance to

Visa/MasterCard in Japan

2008 U.K. Outlook

Expect significantly lower loss in 2008

•

Removal of one-time charges

•

Fee and interest income opportunities

•

Expense and rewards savings opportunities

•

Business mix shift / shrinking portfolio

International Card Turnaround

Credit Improvement

Actions

•

Tightened acquisition

underwriting, lines

based on new

scorecards (complete)

•

Enhanced line

management,

authorizations, cash

strategies (ongoing)

•

New collections

platform (complete)

•

In-sourcing of Goldfish

collections (complete)

Revenue Improvement

Actions

•

Risk based re-pricing of

cash and retail balances

(ongoing)

•

Introduction of annual

fees for rewards-based

products (ongoing)

•

Focus on fee product

cross sales (ongoing)

•

Shifting mix to profitable

revolvers (ongoing)

Expense Improvement

Actions

•

Consolidation of

operation centers

(complete)

•

Technology and

platform migrations

(complete)

•

Leveraging of Discover

vendors and

capabilities (ongoing)

•

Focus on IVR and

internet channels

(ongoing)

Funding and Liquidity

48%

43%

Deposits

Other Borrowings

External Secured Financing

ABS (Term and Private)

Total Managed Funding at 11/30/07

Discover Securitizations

Excess Spread

(2)

•

$8.8Bn cash

•

$2.75Bn capacity to

issue

AAA

ABS

(1)

•

$1.9Bn committed conduit capacity

•

$2.5Bn multi-year unsecured committed

credit facility

10%

12%

Note(s):

(1)

$900MM AAA ABS issuance closed on 1/16/2008

(2)

U.S. Card; Interchange Subgroup

Contingent Liquidity

Sources at 11/30/07

$58.3Bn

Capital Management

•

Business growth requirements

•

Quarterly dividend of $0.06

•

Potential for highly targeted

acquisitions

•

Share repurchase

($1Bn authorized)

Capital Uses

2007 Tangible Equity Ratio

Note(s):

(1)

Based upon tangible equity over net managed receivables

(2)

Assumes dividend maintained

(1)

(2)

10.1%

9.6%

9.4%

6/30

8/31

11/30

Conclusion –

Opportunity to Create Value

•

U.S. Card –

Strong profits and well-positioned for continued controlled growth

•

Payments –

Unique assets, rapidly growing

•

International Card –

Significant upside from turnaround

•

Strong capital generation