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Discover will use the $2.75 billion it will receive from Visa Inc. and MasterCard Worldwide to settle its antitrust lawsuit against the card brands to "build out its market" including possibly adding more "deposit-gathering capabilities," Roy A. Guthrie, Discover executive vice president and chief financial officer, told analysts during a conference call today. One of Discover's weaknesses is its lack of access to substantial deposits to fund credit card loans and its need to rely instead on more-costly credit card securitization markets for its funding, observers say. Discover has showed solid growth in offering direct-to-consumer savings products, Guthrie said. But in response to an analyst's question, he would not confirm whether Discover might buy a bank or other deposit-gathering vehicle to further boost its funding capabilities. "I'm not going to openly comment on our (mergers and acquisitions) views," Guthrie said. "We monitor the market obviously very closely and I think to the extent that direct-to-consumer type opportunities emerge, those would clearly be in our wheelhouse," he said. Since the U.S. Department of Justice won its case in 2004 and forced Visa and MasterCard to allow their members to issue cards from competing brands, Discover has boosted its network volume significantly, signed agreements with a number of third-party credit and debit issuers, and acquired the Pulse debit network and Diners Club International, Guthrie said. "None of these initiatives would have been possible prior to those favorable rulings in 2004," he said. Morgan Stanley, Discover's former parent, is suing Discover for its share of the settlement proceeds, based on an agreement the two companies entered into last year when Discover was spun off. Discover said yesterday in a news release that Morgan Stanley is in breach of that agreement and "the amount of Morgan Stanley's special dividend is a matter of dispute."
