Wednesday, April 06, 2005

Banking_Morgan Stanley kick off the credit card business

Morgan Stanley said it is looking to spin off Discover credit-card unit, one of the several steps to quell the turmoil around CEO Philip Purcell's leadership of the investment firm, Wall Street Journal reported.

By giving the Discover unit to shareholders, Purcell would exit a business that generated 19 percent of last year's pretax profit, or $1.27 billion. Morgan Stanley, which decided to pursue a spinoff after former executives demanded Purcell's ouster, will be left with a smaller balance sheet and businesses more vulnerable to the ups and downs of stock and bond markets, Bloomberg reported after the interviews with some analysts.

Also, by giving the Discover unit to shareholders instead of selling outside will avoid the tax based on the Discover's total market value. Discover is the seventh-largest credit-card issuer, with more than 50 million cardholders. It is estimated that
the Discover unit may be worth as much as $14 billion as a standalone company, said David Trone, an analyst at Fox-Pitt, Kelton.

Morgan Stanley doesn't give up credit-card business though it said it will spin off the Discover unit. It has opened a new website in United Kingdoms to advertise for its three credit cards named with Morgan Stanley.

"Each business - - securities and payments - - is exceptionally well positioned in its respective marketplaces, with world-class brands, strong momentum and significant growth opportunities." said Philip J. Purcell, Morgan Stanley's chairman and chief executive officer.

Does it mean Discover cards in U.S. is not world-class brand, but Morgan Stanley credit card in U.K. is?

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