Oct. 4, 2004

Discover Financial Services Files Federal Lawsuit Against Visa And Mastercard For Damages Stemming From Antitrust Violations

RIVERWOODS, Illinois – October 4, 2004 – Discover Financial Services, a business unit of Morgan Stanley (NYSE:MWD), today filed a lawsuit in federal court in New York seeking damages from Visa and MasterCard as compensation for harm caused by anticompetitive business practices of the two associations. The lawsuit was filed shortly after the U.S. Supreme Court denied the appeal by the associations of a lower court ruling that had revoked the exclusionary policies of Visa and MasterCard.

“The rejection by the Supreme Court of Visa's and MasterCard's appeal means that they have lost every attempt to salvage their illegal barriers that have stifled competition for more than a decade. Visa and MasterCard lost in the trial court, lost in the court of appeals, and now they have lost their appeal to the Supreme Court,” said David W. Nelms, Chairman and Chief Executive Officer of Discover Financial Services.

“The courts have ruled that Visa and MasterCard abused their market power to the detriment of consumers and competition, and that their exclusionary rules limited Discover's share of the general purpose credit card market and also barred Discover from entering the debit card market,” Nelms added. “Now that Visa and MasterCard's anticompetitive bylaws have finally been struck down as unlawful, we are moving forward with our business plans and are seeking triple damages for the harm that those violations have caused us.”

In her 2001 ruling in the Department of Justice's antitrust case against Visa and MasterCard, U.S. District Judge Barbara S. Jones found that the exclusionary rules of Visa and MasterCard restrain competition in the network market because they prevent Discover from offering network services to the members of the Visa and MasterCard associations. She held that the “exclusionary rules have deterred United States issuers from entering into issuing agreements with Discover Card and forced Discover to operate as a single-issuer network, stunting its competitive vitality.”

The Second Circuit Court of Appeals upheld the decision against Visa and MasterCard, saying: “Without doubt the exclusionary rules in question harm competitors.” The appellate court also found that because of Visa's and MasterCard's market power “No United States bank has been willing to give up its membership in the Visa U.S.A. and MasterCard networks in order to issue Discover Cards.”

“Without these restrictive and illegal rules by Visa and MasterCard, financial institutions in the U.S. would have issued credit and debit cards through the Discover Network, leading to greater consumer use and increased merchant acceptance of Discover Cards,” Nelms said.

Nelms praised the Supreme Court's decision to deny the appeal by Visa and MasterCard of the antitrust ruling against the two associations.

“This is a victory for consumers, merchants and financial institutions,” Nelms said. “Today's decision frees financial institutions to partner with Discover Financial Services, which will provide more choice and value to consumers and merchants. Discover Financial Services has been in advanced discussions with potential partners regarding issuance of cards on the Discover Network, and we are eager to move forward with these new partnerships.”

A more competitive marketplace that includes the Discover Network is good for financial institutions, which for the first time will enjoy the benefits of network competition, Nelms said. The ruling is also good for merchants because more competition will mean more volume on Discover's low cost network, with the ultimate winners being consumers who will enjoy the benefits of greater choice in a more competitive market, he added. Nelms said the Discover Network, comprised of more than 4 million merchant and cash access locations, is uniquely qualified to deliver these benefits because it is the most efficient and flexible network.

“Today is the day that Visa and MasterCard hoped would never come,” Nelms said. “Their time of protecting marketplace monopolies through illegal restrictions is over.”

About Discover Financial Services
Discover Financial Services, a business unit of Morgan Stanley (NYSE:MWD), operates the Discover Card and the Discover Network for its more than 50 million Cardmembers. The Discover Network is the largest proprietary credit card network in the United States with more than 4 million merchant and cash access locations. For more information visit www.discovercard.com or www.discovernetwork.com.

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