Discover and Morgan Stanley in dispute over settlement agreement

Discover and Morgan Stanley in dispute over settlement agreement

After reaching a $2.75 billion settlement with Visa and MasterCard, Discover Financial Services says it is in "dispute" with Morgan Stanley over the proportion of the money it should hand over to its former owner.

Earlier this month Discover settled a long running anti-trust lawsuit that accused rivals MasterCard and Visa of blocking access to the bank-issued card market in the US.

Yesterday Discover said it expects to receive up to $2.75 billion in the settlement, with approximately $862 million paid in the current fiscal quarter and up to $472 million per quarter in 2009.

Discover was set to pay Morgan Stanley the first $700 million recovered and half of any proceeds above $1.5 billion, up to a total consideration of $1.5 billion, as part of a deal struck when the bank spun off the card company last year.

But in a statement, Discover says it has told Morgan Stanley that it is "in breach of the agreement and the amount of Morgan Stanley's special dividend is a matter of dispute".

According to press reports, Morgan Stanley rejects this and says it is due to receive around $1.2 billion pre-tax from the settlement. The bank has filed a suit seeking a declaratory judgement to resolve the issue.

Under the agreement with Discover, Visa will pay $1.89 billion and MasterCard $862.5 million. Morgan Stanley will also repay MasterCard $35 million and Visa $65 million.

Discover and American Express both filed suit after the US Supreme Court upheld a lower court ruling that found Visa and MasterCard violated antitrust laws by banning their member banks from issuing cards from rival firms.

American Express settled with Visa for up to $2.25 billion last November. This was followed by a $1.8 billion deal with MasterCard this June.

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