Morgan Stanley Unveils Plans For Discover Card Spinoff
Morgan Stanley finally made a decision on Discover credit card operations. Discover, the fourth largest debit and credit card network, will be spun off and shares would be distributed to the investment banks shareholders.
Based on the available information, Discover has 50 million cardholders under its name, which is ranked fourth behind Visa, Master Card and American Express.
Speculation has swirled for years that Morgan Stanley would split off Discover to focus on its prime investment banking, brokerage and trading operations. Morgan Stanley shareholders have urged management to shed the division because it has been steadily losing ground in a crowded field of larger competitors.
Morgan Stanley announced when it released its fourth-quarter results on Dec. 19 that it would spin off Discover in the next year. The move comes as Visa International plans to go public in 2007, following MasterCard’s initial public offering last May.
There has always been criticism that Discover didn’t fit into Morgan Stanley’s financial model. In August 2005, Mack told Wall Street that he would keep the credit-card unit inside Morgan Stanley’s corporate umbrella. However, one thing changing his mind might have been a string of big deals involving rivals. Bank of America last year acquired MBNA for $35 billion, and shares of MasterCard have increased 2 1/2 times since their May 2006 debut.