Discover agrees to pay Morgan Stanley $775 million

Discover Financial Services agreed to pay $775 million to Morgan Stanley to resolve a dispute over how to divide the proceeds of a legal settlement with Visa Inc. and MasterCard Inc.

Visa and MasterCard, the world's biggest credit-card companies, announced in 2008 that they would pay $2.75 billion to Discover to settle an antitrust lawsuit claiming they blocked banks from issuing Discover cards.

Morgan Stanley, which spun off Discover in 2007, sued in state court in 2008 as part an effort to collect $1.2 billion of the settlement under a separation agreement between the two companies. Today's settlement resolves that suit, Discover said in a regulatory filing.

Under the agreement with Morgan Stanley, Discover was to pay Morgan Stanley the first $700 million recovered. The bank was also to receive half of any settlement proceeds above $1.5 billion, up to a maximum of $1.5 billion, according to regulatory filings.

Discover, based in Riverwoods, claimed New York-based Morgan Stanley had breached the separation agreement.

The settlement follows a ruling in Morgan Stanley's favor in the state court case last month. New York Supreme Court Justice Barbara Kapnick in Manhattan ruled Jan. 5 that Discover's claim that Morgan Stanley breached the separation agreement wasn't sufficient grounds for setting aside its agreement to pay Morgan Stanley part of the antitrust suit settlement.

In the statement, Discover said it paid Morgan Stanley $775 million from an escrow account yesterday in full payment of the settlement.

"We are delighted with the outcome," said Mark Lake, a spokesman for Morgan Stanley.

The case is Morgan Stanley v. Discover Financial Services Inc., 08-cv-603017, State Supreme Court, New York County (Manhattan).