Morgan Stanley, the investment bank that has been in the spotlight for all the wrong reasons recently, has agreed to spin off its credit card division Discover. A spokesperson for the bank said the spin-off decision was taken following the last vote from chief executive Philip Purcell.
There was much talk last week about a hostile take-over bid after a huge row divided the board members over business strategy. Some shareholders had also released an advertisement in the newpapers demanding the resignation of Purcell.
However David Walker, chairman of Morgan Stanley International, said there were no such talks and he certainly did not expect a takeover bid. He played down the board’s conflict by saying it was simply a disagreement between talented people over how to execute the company’s strategy.
Chief executive Purcell’s reluctance to vote for Discover’s spin-off was understandable because he had set up the credit card business as Dean Witter Discover and merged with Morgan Stanley in 1997.
This unit had $50 billion in managed loans and accounted for 17% of net profits last year. It is expected to fetch anything between $8bn and $13bn. Many large shareholders had resented the bank’s credit card business and wanted it to focus only on securities and institutional asset management. Purcell had wanted Discover to continue as part of Morgan Stanley and promised shareholders that in two to three years it would improve. He later gave in to pressure from large shareholders who insisted on the spin-off.
The board has also undergone a major reshuffle which has resulted in many executives resigning. The main trouble faced by the company was from eight former executives who wanted Purcell’s ouster. The board and the chairman have however stood by Purcell who has emerged stronger with the appointment of two new co-presidents Zoe Cruz and Stephen Crawford. Both have securities industry experience and are soon expected to join the board.
The spin-off would be completed in six months. As news about the spin-off reached the market, Morgan Stanley's shares climbed 2.5%.
