Discover shares rise after lawsuit settlement

NEW YORK Oct 28 (Reuters) - Shares of credit card issuer and network Discover Financial Services Inc (DFS.N) rose on Tuesday, one day after the company said it will receive $2.75 billion from MasterCard Inc (MA.N) and Visa Inc (V.N) to settle a lawsuit over anti-competitive practices.

The company, under pressure as borrowing costs rise and loan losses increase, would use the proceeds to expand its domestic and global presence, as well as its deposits base, Chief Financial Officer Roy Guthrie said on a conference call with analysts.

But Guthrie was reluctant to speak about acquisitions.

"We have a significant number of opportunities where we can invest some of the portion of the proceeds. We will evaluate these during the course of 2009 and beyond, but our intention at this point is to see a great majority of these proceeds goes towards earnings and to the capital base," he said.

Discover sued credit card networks MasterCard and Visa in 2004 for harming its business by preventing banks that issued MasterCard and Visa cards from also offering Discover cards.

Under the settlement agreement, Visa will pay $1.89 billion, the company said in a statement, while MasterCard said it will pay $862.5 million.

The settlement price was in line or slightly above analysts' expectations.

"We expect a near-term pop (in Discover) now that the MasterCard and Visa settlement details have been released," John Williams, an analyst of Macquarie Research, said in a report.

Discover shares were up 6.5 percent at $10.32 in early trading on the New York Stock Exchange, while Visa's stock rose 4.2 percent to $48.52, and MasterCard shares rose 91 cents to $127.26.

However, the payment has triggered a lawsuit by Discover's former parent, Morgan Stanley (MS.N), which says it is entitled to $1.2 billion of the proceeds.

Discover has said in regulatory filings that it agreed to pay Morgan Stanley the first $700 million of proceeds it receives from a settlement, and half of any proceeds it receives above $1.5 billion, with a maximum potential payment of $1.5 billion.

But Discover has said that Morgan Stanley is in breach of the agreement and the amount it will pay to its former parent was a matter of dispute.

Guthrie declined to comment during the conference call about the Morgan Stanley lawsuit. (Reporting by Juan Lagorio, editing by Maureen Bavdek)