Lehman Brothers Financial Services Conference Presentation

May 20, 2008

Lehman Brothers

Financial Services Conference

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 to the comparable GAAP figures are included in the Company’s

Form 10-K for the year ended November 30, 2007 and the Company’s Form 10-Q for the quarter

ended February 29, 2008, 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 of the Company,

please see "Special Note Regarding Forward-Looking Statements," "Risk Factors," "Business –

Competition,"

"Business

–

Regulatory

Matters"

and

"Management’s

Discussion

and

Analysis

Financial Condition and Results of Operations" in the Company’s Information Statement that is

included as part of the Company’s Form 10-K for the year ended November 30, 2007, which is on

file with the SEC.

Business Overview

U.S. Card

Risk Management

Payments

Earnings, Capital and Funding

Today’s Agenda

Roy Guthrie

Executive Vice President

CHIEF FINANCIAL OFFICER

•

PULSE and Discover Network

third-party payments business

–

4,500+ financial institutions

–

$96.8Bn network volume

(2)

•

Diners Club International

expected to be acquired

•

Discover cards issued on Discover

Network

–

6th

largest issuer

–

$47.5Bn

receivables

(1)

–

$105.9Bn

total

volume

(2)

–

3rd

largest U.S. merchant network

Third-Party

Payments

U.S. Card

Business Overview and Objectives

Note(s):

(1)

Receivables reported on a managed basis as of February 29, 2008

(2)

Volumes reported for the trailing four quarters ended 1Q08

•

2.9% pretax ROMR

•

4%-8% loan growth

•

Maintain strong credit quality

Objectives

•

Global acceptance

•

18%+ third-party volume growth

•

Complete acquisition/integrate Diners

Club International

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

•

Close Goldfish sale in 2Q

•

Close Diners Club acquisition

1Q Results

(1)

24% volume growth

3.1% pretax ROMR

4.37% charge-off rate

3.93% 30+ day delinquency

2% growth (43% reduction in balance

transfers, 5% growth in sales)

Note(s):

(1)

Managed basis

Closed

On track

U.S. Card

U.S. Card Growth Foundation

•

Distinctive brand

•

Leading reward

•

Proprietary network

•

World-class customer experience

15%

23%

24%

28%

58%

60%

AMEX

Discover

Capital

One

Chase

Citi

BofA

Strong Brand

Unaided Issuer Brand Awareness

Source: GfK Arbor, 4Q07 data

2008 Brand Keys

Award Winners

Citi

AMEX

JPM

Chase

Discover

BofA

Cap One

Discover Continues to Lead Cash Rewards

Household Ownership of

Cash Rewards Cards

(2)

Source:

2007 TNS Consumer Card Strategies Research Program

45%

13%

15%

14%

Note(s):

(1)

Comperemedia

1/9/08;

per

Discover

fiscal

quarters

(2)

Percentages

add

>100%

due

household

use

multiple

brands

15%

16%

22%

18%

16%

18%

16%

15%

17%

20%

25%

27%

26%

24%

47%

41%

35%

41%

43%

4Q06

1Q07

2Q07

3Q07

4Q07

Discover

Chase

HSBC

Other

Cash Reward Mail Share

(1)

Leverage Network Merchant Relationships

ShopDiscover Partners

100+ Cashback Bonus Partners

Large Merchants

Small Merchants

Impact of Increased Acceptance

Acceptance Benefit

•

Increase share of wallet

•

Higher cardmember usage and

balance

•

Improve new account response rates

•

Appeal to new customer segments

Merchant Acceptance

% of Visa/MasterCard Merchants

~85%

(1)

3rd

party

acquirer

opportunity

~100%

Note(s):

(1)

Acceptance

estimate

based

upon

Roper

survey

and

data

provided

third

party

acquirers

2007 J.D. Power

Card Satisfaction Index

Recognized Leader in Customer Experience

571

607

617

636

638

646

651

652

728

735

AMEX

DFS

Citi

Chase

U.S.

Bank

WaMu Wells

Fargo

Cap

One

BofA HSBC

Rewards

Discover

Ranking

Satisfaction

Categories

Problem Resolution

Fees/Rates

Billing/Pmt Proc

Benefits/Features

Source:

2007 Credit Card Satisfaction Study-J.D. Power

44%

58%

67%

72%

77%

Discover

Citi

AMEX

BofA

Capital

One

Chase

Customer Experience Drives Cardmember Loyalty

Note(s):

(1)

Excluding

Discover

Financial

Services

and

American

Express

(2)

Latest

Master

Trust

balances

3/18/08;

based

receivables

(3)

Weighted

average

tenure

the

receivables

that

are

assets

the

Chase

Issuance

Trust

> 5 Years

Cardmember Attrition

Portfolio Tenure

(2)

(3)

4.5%

9.1%

Discover

U.S. Industry Average

Source:

Cardweb’s

January

2007

Monthly

Survey

(1)

Risk Management

Risk Management Approach

•

Prudent risk management orientation

•

Strong analytic talent

•

State-of-the-art statistical tools and systems

–

Profit-based decisioning

–

Tradeline

credit bureau data

–

Customer level line increase/decrease strategies

–

Internally developed models and strategies

3.0%

3.5%

4.0%

4.5%

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

Discover

Industry

Master

Trust

30+

Day

Dollar

Delinquency

Rate

(1)

-60%

-40%

-20%

20%

40%

60%

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

Discover

Industry

Master

Trust

YOY

Variance

Net

Loss

Rate

(1)

Source:

(1)

Industry

includes

Bank

America,

Capital

One,

Chase

and

Citigroup

Credit Trends Versus Peers

Portfolio Positioning in Current Environment

DFS

Homeownership

Distribution

(2)

DFS

Mortgage

Distribution

(2)

Demographic

Profile

(1)

73%

48%

42%

65%

36%

30%

Married

College Graduate

Income > $75K

Discover

Other Issuers

Mortgages

54%

Own

Outright

21%

Rent,

Other

25%

Fixed

Prime

73%

Fixed Non-

Prime

ARM Non-

Prime

ARM Prime

15%

Source:

(1)

TNS

Financial

Services’

2007

Consumer

Card

Study

(2)

Based on Credit Bureau and internal data as of 4Q07

44%

58%

67%

72%

77%

Discover

Citi

AMEX

BofA

Capital

One

Chase

10%

12%

15%

14%

17%

16%

18%

22%

25%

21%

Discover

Chase

Capital

One

Citibank

BofA

AMEX

California

Florida

Portfolio Positioning Versus Peers

Source:

Master Trust balances as of 3/18/08; based on receivables

Note(s):

(1)

Weighted

average

tenure

the

receivables

that

are

assets

the

Chase

Issuance

Trust

(2)

represented

Chase’s

CHAIT

Master

Trust

(1)

(2)

Distribution of Receivables

Portfolio Tenure

> 5 Years

Payments

Discover Network

Branded, scaleable, signature network

Broad product range with unique

functionality

‘Closed loop’

network benefits

Reciprocal agreements with

ChinaUnion Pay and JCB

largest PIN / POS network

Global payments network

POS and ATM acceptance across

185 countries

$101Bn

20+

$91Bn

4,500+

$31Bn

40+

Overview Volume

(1)

Issuers

(2)

Note(s):

(1)

Discover

Network

and

Pulse

volumes

for

trailing

four

quarters

ending

1Q08;

Diners

Club

volume

for

calendar

year

2007

(2)

Diners

Club

issuers

are

licensees

(3)

Diners

Club

acquisition

expected

within

days

April

2008,

subject

regulatory

approval

and

satisfaction

other

closing

conditions

(3)

Acquisition of Diners Club International

Rationale

•

Unique opportunity to achieve global merchant acceptance

•

Accelerates Payments business volume/revenue

•

Enhances appeal to issuers, consumers, merchants and licensees

Key Terms

•

Purchase price of $165MM, all cash

•

Closing anticipated within 90 days of April 4, 2008

•

Near-term modest positive pretax profit contribution to Third-Party

Payments of $10-$15MM

Diners Club International Structure

Licensees

Franchisor

Merchants/ATMs

•

8 million

•

185 countries

Cardholders

$31Bn

Volume

•

Owner and licensor of

brand

•

Approves programs and

annual business plan

•

Processes all cross-

border transactions and

provides currency

conversion

•

Sets policies &

procedures

•

6 million

cards issued

•

Exclusive license to

issue cards and acquire

merchants within

geographic market

•

Pay royalty fees

to franchisor

•

Responsible for local

regulatory compliance

•

40+ licensees

Earnings, Capital and

Funding

1Q 2008 Highlights

EPS

$0.50

Net Income

$239MM

Return on Average Equity

17%

Continuing Operations

1M LIBOR

Charge-Off Rate

Margin Offsets to Rising Credit Losses

•

Market funding costs

generally decline when

losses rise

•

Fixed rate APR

accounts

maintain pricing

•

Higher delinquency rates

trigger higher finance

charges and late fees

•

Potential reduction in promo

BTs supports higher yield

•

Higher loan loss reserves

when delinquencies rise

•

I/O asset revalues with

changes in charge-offs and

funding costs

Margin Response to Rising

Credit Losses

Industry Credit Card Losses Generally

Move Opposite to Market Interest Rates

Source:

Federal Reserve and Economy.com

Note(s):

(1)

1Q08 data is quarter to date through 3/11/08

(2)

Represents credit card consumer loan charge-offs for top 100 commercial banks

(%)

(2)

1Q Results –

U.S. Card (Managed Basis)

Note(s):

(1)

Managed receivables

$MM

% MR

(1)

$MM

% MR

(1)

YOY %

Interest Margin

$888

7.7%

$983

8.1%

11%

Other Revenue

490

4.2%

602

5.0%

23%

Total Revenue

$1,378

11.9%

$1,585

13.1%

15%

Charge-Offs

447

3.9%

527

4.3%

18%

Reserve Build

(41)

-0.4%

100

0.8%

N/M

Total Provision

$406

3.5%

$627

5.2%

54%

Expense

572

4.9%

583

4.8%

Pretax Income

$400

3.5%

$375

3.1%

(6%)

Average Receivables (Bn)

$47.0

$48.9

Sales (Bn)

$22.0

$23.2

1Q07

1Q08

Quarter Results –

Third-Party Payments

(MM)

1Q07

1Q08

YOY %

Total Revenue

$31

$35

12%

Total Expense

Pretax Income

$12

$16

30%

Operating Profit Margin

38%

44%

Volumes (Bn)

PULSE

$20.0

$24.8

24%

Third-Party Issuers

$1.2

$1.5

27%

Asset-Backed Securitization

ABS Market Update

•

ABS market continues to be

challenging but open for AAA

issuance

–

Total 2008 YTD issuance of

$34.8Bn versus $30.8Bn

in 2007 YTD

(1)

•

Depth of market participation has

been reduced and sub bonds are

being retained

•

Discover has been active with three

recent public deals totaling $2.75Bn

•

New issuances at wider spreads

and typically shorter durations

$1.6

$1.1

$2.6

$1.6

$3.7

$1.2

$2.3

$2.9

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

Total ABS Issuance

ABS Maturities

Source:

(1)

Bank

America;

ABS

issuance

through

May

1st

for

2007

and

2008

Issuance

Maturities

Discover Card Master Trust/ DCENT (Bn)

Credit Card Master Trust Excess Spreads

10%

12%

Feb-07

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Discover

(I/C Subgroup)

Average of JPM, BofA, Citi (CHAIT,BACCT,CCCIT)

$3.5

$18.5

$3.0

Brokered

Direct to Consumer and Others

Sweeps

Bank Deposit Funding

•

CDs are issued through top tier

U.S. wealth management firms

•

Discover continues to focus on

extending maturity profile by

issuing deposits in longer

tenures

•

Direct-to-consumer deposit

issuance continues to grow

Bank Deposits –

1Q08 (Bn)

Contingent Funding Sources

At Spin

(Bn)

June 2007

November 2007

February 2008

Cash

$5.1

$8.3

AAA ABS Capacity

2.4

4.7

6.0

Bank Revolver

2.5

Total Contingent Funding

$10.0

$15.5

$16.9

10.5%

10.2%

11.5%

3Q07

4Q07

1Q08

Capital Management

Tangible Equity/Net Managed

Receivables

Capital Management

•

Capital has strengthened since

spin-off

–

Solid earnings

–

Sale of U.K. business

•

Quarterly dividends of $0.06 per

share since spin-off

•

Authorized up to $1 billion of share

repurchases over the next 3 years

•

Long-term ratings at

Discover Bank

•

Fitch

BBB+

•

Moody’s

Baa2

•

S&P

BBB

Note(s):

(1)

Net

managed

receivables

include

receivables

Goldfish

Bank

for

3Q07

and

4Q07;

were

reclassified

discontinued

operations

1Q08

(1)

2008 Outlook

•

Continued rise in delinquencies and charge-offs

•

Spreads should widen as cost of funds decreases

•

Funding environment choppy; ABS available, but remain at wider spreads

Our Response:

•

Maintain lower balance transfer volumes/loan growth

•

Maintain prime underwriting focus

•

Remain conservative on liquidity and capital

•

Aggressive focus on payments opportunities

Q&A