8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 10, 2009

DISCOVER FINANCIAL SERVICES

(Exact name of registrant as specified in its charter)

Commission File Number: 001-33378

Delaware	36-2517428
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

2500 Lake Cook Road, Riverwoods, Illinois 60015

(Address of principal executive offices, including zip code)

(224) 405-0900

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01 Regulation FD Disclosure.

Discover Financial Services (“Discover”) previously announced that David Nelms, chairman and chief executive officer of Discover, will present at the Bank of America Merrill Lynch Banking and Financial Services Conference at the Grand Hyatt in New York on Tuesday, November 10, 2009, at 2:35 p.m. Eastern time.

Presentation slides and a link to the live audio webcast will be posted on the day of the conference at www.investorrelations.discoverfinancial.com. A replay of the webcast will be available within 24 hours after the webcast. The presentation is included as Exhibit 99.1 hereto and incorporated by reference into this Item 7.01.

The information contained in this Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, is furnished pursuant to Item 7.01 of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expressly stated by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Discover Financial Services Bank of America Merrill Lynch Banking and Financial Services Conference Presentation dated November 10, 2009

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	DISCOVER FINANCIAL SERVICES
Dated: November 10, 2009	By:	/s/    D. CHRISTOPHER GREENE
	Name:	D. Christopher Greene
	Title:	Vice President, Assistant General Counsel and Assistant Secretary

EXHIBIT INDEX

Exhibit No.	Description
99.1	Discover Financial Services Bank of America Merrill Lynch Banking and Financial Services Conference Presentation dated November 10, 2009

EX-99.1

1

Bank of America Merrill Lynch

Banking and Financial Services Conference

David Nelms

Chairman &

Chief Executive Officer

November 10, 2009

Exhibit 99.1

2

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 Current Report on Form 8-K dated

September 17, 2009, Quarterly Report on Form 10-Q for the quarter ended August 31, 2009 and 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.  Certain reconciliations are also included at the end of this presentation.

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 Reports on Form 10-Q for the quarters ended February 28, 2009, May 31,

2009 and August 31, 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

Note(s):

Balances as of August 31, 2009; volume based on the trailing four quarters ending 3Q09; refer to appendix for reconciliation of GAAP to managed data

U.S. Card Issuing

•

Leading cash rewards program

•

Loyal, prime customer base

•

$48Bn in managed receivables

Direct Banking

•

$10Bn direct consumer deposits

•

$3Bn personal and student loans

•

$110Bn volume

•

4,500+ issuers

•

$97Bn volume

•

30+ issuers

•

$26Bn volume

•

49 franchises

•

185 countries/territories

PIN Debit/ATM Network

International Signature Network

North American Signature Network

4

Financial Strength

•

Profitable year-to-date, even

excluding settlement proceeds

•

Managed revenue:

$9Bn

•

Total managed assets:

$68Bn

•

Market

capitalization:

$7.5Bn

•

Total volume:

$234Bn

•

Total transactions:

4.3Bn

•

Annual rewards payout:

>$700MM

$1.57

$1.28

$1.79

YTD 3Q07

YTD 3Q08

YTD 3Q09

YTD Earnings Per Share

(1)

Key Statistics

(2)

Note(s)

1.

Diluted EPS from continuing operations

2.

As of August 31, 2009; managed revenue, total volume and total transactions based on the trailing four quarters ending 3Q09; refer to appendix for reconciliation of

GAAP to managed data

5

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

Performance Priorities –

Current

6

6

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%

3%

6%

9%

12%

15%

18%

Unemployment

Unemployed plus Underemployed (Persons Working Part-Time due to Economic Reasons)

7

Managed Net Charge-off Rate –

3Q09

(1)

Loss Guidance

7

Credit Quality Leader

8.6%

8.9%

9.6%

10.2%

10.3%

13.9%

DFS

AXP

COF

C

JPM

BAC

(2)

•

Continue to expect 4Q09 managed

net charge-off rate to be in range of

8.5-9% versus 8.4% in 3Q09

•

Will continue to maintain reserves

reflecting credit conditions

Total Managed Portfolio

U.S. Credit Card Portfolio

Source:

Company Earnings Releases

Note(s)

1.

Refer to appendix for reconciliation of GAAP to managed data

2.

Branded NA Cards

8

Conservative Loan Growth

3Q09 Update

•

Total managed loans were

unchanged from 2Q09

–

Strong growth in student loans

•

Credit card loans were down 2%

from 2Q09

–

Significant reductions in

balance transfers

(1%)

(2%)

(10%)

(11%)

(11%)

(19%)

C

DFS

BAC

COF

JPM

AXP

U.S.

Credit

Card

Receivables

(1)

3Q YOY % Change

Note(s)

1.

Based on 3Q09 quarterly reports; refer to appendix for reconciliation of GAAP to managed data

2.

Branded NA Cards

3.

U.S. Card

4.

Card Services

(2)

(3)

(3)

(3)

(4)

(3)

9

Managed Net Interest Margin

(1)

9

Margin Expansion

7.75%

8.54%

9.42%

2007

2008

YTD 3Q09

3Q09 Update

•

Impact of portfolio rebalancing

•

Significant reduction in

promotional rates

•

Cost of funds remains low

+167bps

Note(s)

1.

Refer to appendix for reconciliation of GAAP to managed data

10

Non-Interest Expense

(1)

(%)

10

Expense Management

3Q09 Update

•

U.S. Card expenses down 16% YOY

•

Lowest quarterly operating expense

ratio in our history

•

Increase in marketing spend in 4Q09

4.27%

4.93%

5.28%

2007

2008

YTD 3Q09

-101bps

Note(s)

1.

Non-interest expense as a percent of managed loans; refer to appendix for reconciliation of GAAP to managed data

11

Other, 3%

ABS, 44%

Direct-to-

Consumer

& Affinity

Deposits,

18%

Brokered

Deposits,

34%

ABCP

Open

Lines, 1.5

Committed

Credit, 2.4

Liquidity

Reserve,

10.6

Fed

Discount

Window,

6.4

Capital, Funding and Liquidity

(1)

Capital Ratios

Funding Mix (%)

Total

$56Bn

Contingent Liquidity ($Bn)

Total

$21Bn

•

Total capital

15.9%

•

Tier 1 capital

14.6%

•

TCE/TMA

10.1%

•

TCE/MR

13.8%

Recent Capital Market Transactions

•

7/09

Common Equity Raise

$0.5Bn

•

7/09

DFS 10 Year Debt

$0.4Bn

•

7/09  TALF ABS

$1.5Bn

•

9/09

TALF ABS

$1.3Bn

Note(s)

1.

As of 3Q09, prior to 12/1/09 FAS 166/167 change; refer to

appendix for reconciliation of GAAP to managed data

12

12

Build for the future

•

Adjust business model for CARD Act

•

Leverage Discover brand and leading Rewards program

•

Continue to grow direct-to-consumer banking business

•

Increase acceptance to drive higher sales

•

Grow and integrate Diners Club/PULSE/Discover networks

Performance Priorities –

Future

13

0%

2%

4%

6%

8%

10%

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Managed Net Interest Margin

ROMR

Assessing Impact of CARD Act

Introduction of:

•

Promotional rates (1999)

•

Risk-based pricing (2000)

•

Differentiated cash APRs (2000)

•

Delinquency repricing (2002)

Managed Net Interest Margin & ROMR

(1)

Note(s)

1.

Calendar year data prior to 1998; ROMR is defined as return on managed receivables; refer to appendix for reconciliation of GAAP to managed data

14

Competitive Advantages

44%

22%

16%

14%

7%

6%

DFS

JPM

C

AXP

BAC

COF

Cash Rewards Leadership Drives Loyalty

Cash

Rewards

Market

Share

(1)

Note(s)

1.

Household ownership of cash rewards cards; percentages add to more than 100% due to household use of multiple brands

Source

2008 TNS Consumer Card Research

•

Highest household ownership of

cash reward cards

•

20+ years of cash rewards

experience and innovation

•

Focus on clarity and simplicity

•

Merchant funded rewards

•

Best-in-class loyalty

15

Direct Banking

Direct-to-Consumer

Deposits

(1)

(Bn)

Direct-to-Consumer Banking Growth

Discover Personal Loans

•

Superior alternative for

consolidating debt

•

$1.3Bn in outstanding loans

•

86% cross-sell accounts

Discover Student Loans

•

Federal and private student loans

•

$1.4Bn in outstanding loans

•

On preferred lender list at

700+ schools

$10.2

$4.8

$2.7

3Q07

3Q08

3Q09

Note(s)

1.

Includes deposits originated through affinity relationships

16

Increasing Acceptance to Drive Higher Sales

U.S. Merchant Acceptance

•

Agreements with over 100

merchant acquirers

•

Implementation continues

(7%)

(11%)

(12%)

(13%)

(14%)

(15%)

DFS

COF

JPM

AXP

C

BAC

U.S.

Credit

Card

Sales

(1)

3Q YOY % Change

Note(s)

1.

Based on 3Q09 quarterly reports

2.

U.S. Card; sales volume, except AXP = sales & cash volume

3.

Card Services; sales, BT & cash volume

4.

Branded NA Cards; sales & cash volume

5.

Global Cards; sales volume

•

5% increase in active merchants

•

Building awareness via cost-efficient

targeted marketing

(2)

(2)

(3)

(2)

(4)

(5)

17

Achieving

Global

Acceptance

–

ATM

Global ATM Network

-

Over 650,000 ATMs

-

Coverage in over 100 countries and continuing expansion

*Based on Internal Discover Network Data

Note: Once Discover Network completes its global interoperability initiative, each Diners Club International location is expected to accept Discover Network cards and vice-versa

18

Achieving

Global

Acceptance

–

Merchant

POS

Global POS Network

Discover cards accepted at DCI merchant locations:

-

Goal of 50+ countries/territories by year-end 2009

-

Goal of 100 countries/territories by June 2010

-

Goal of 125 countries/territories by year-end 2010

*Based on Internal Discover Network Data

Note: Once Discover Network completes its global interoperability initiative, each Diners Club International location is expected to accept Discover Network cards and vice-versa

19

1986

2009

Discover

®

revolutionized

credit cards

2005

•

Debit network

acquisition

•

International

network

acquisition

2008

2006

•

First ZIP

SM

contactless

merchants

deployed

Leveraging Discover Assets to Drive Growth

•

CUP partnership

announced

•

JCB

partnership

announced

Continuous innovation and expansion:

•

Global ATM network

•

Network-to-network relationships

•

Global merchant acceptance

•

Contactless/EMV

20

20

Manage conservatively in a challenging environment

•

Superior

credit

performance:

163bps

lower

charge-offs

than

industry

average

(2)

•

Conservative

loan

growth:

+1%

YOY,

significant

reduction

in

balance

transfers

•

Increase

net

interest

margin:

95bps

increase

YOY

•

Reduce

expenses:

16%

decrease

in

U.S.

Card

YOY

•

Focus

on

capital/liquidity/funding:

10.1%

TCE/TMA

Build for the future

•

Adjust business model for CARD Act

•

Leverage Discover brand and leading Rewards program

•

Continue to grow direct-to-consumer banking business

•

Increase acceptance to drive higher sales

•

Grow and integrate Diners Club/PULSE/Discover networks

Performance Priorities

(1)

Note(s)

1.   Discover data as of 3Q09

2.   Managed net charge-offs (credit card loans); industry average includes 3Q09 results from most relevant reporting segments of DFS, JPM, C, BAC, COF and AXP

Bank of America Merrill Lynch

Banking and Financial Services Conference

David Nelms

Chairman &

Chief Executive Officer

November 10, 2009

22

Appendix: Reconciliation of GAAP to Managed Data

3Q09

(1)

Revenue Net of Interest Expense ($000s)

GAAP Basis

$7,132,139

Securitization Adjustments

1,798,454

Managed Basis

$8,930,593

3Q09

Total Assets ($000s)

GAAP Basis

$42,698,290

Securitization Adjustments

25,096,019

Managed Basis

$67,794,309

3Q09

Net Charge-off Rate (%)

GAAP Basis

8.5%

Securitization Adjustments

8.8%

Managed Basis

8.6%

2Q09

3Q09

Credit Card Loans ($000s)

GAAP Basis

$25,312,764

$22,721,603

Securitization Adjustments

23,590,868

25,414,036

Managed Basis

$48,903,632

$48,135,639

(1) As of August 31, 2009, based on the trailing four quarters ending 3Q09

23

2007

2008

3Q09

Average Total Loans ($000's)

GAAP Basis

$19,947,784

$21,348,493

$27,454,927

Securitization Adjustments

26,965,690

27,662,655

23,868,274

Managed Basis

$46,913,474

$49,011,148

$51,323,201

Net Interest Margin (%)

GAAP Basis

6.8%

6.6%

7.6%

Securitization Adjustments

8.4%

10.1%

11.5%

Managed Basis

7.8%

8.6%

9.4%

Non-Interest Expense (%)

GAAP Basis

12.4%

11.3%

8.0%

Securitization Adjustments

-

-

-

Managed Basis

5.3%

4.9%

4.3%

Return on Managed Loan Receivables (%)

GAAP Basis

3.0%

4.3%

3.4%

Securitization Adjustments

-

-

-

Managed Basis

1.3%

1.9%

2.4%

Appendix: Reconciliation of GAAP to Managed Data

24

Appendix: Reconciliation of GAAP to Managed Data

3Q09

Tangible Common Equity/Tangible Assets (%)

GAAP Basis

16.0%

Securitization Adjustments

27.0%

Managed Basis

10.1%

Tangible Common Equity/Net Loans (%)

GAAP Basis

28.7%

Securitization Adjustments

26.7%

Managed Basis

13.8%