Morgan Stanley to spin off Discover card

MORGAN Stanley today dismissed speculation that the investment bank is ripe for takeover as it was forced into a change of direction by retreating from its 'financial supermarket' strategy with the spin-off of its Discover Card division.

The credit-card spin-off comes amid growing pressure on the group's chairman and chief executive, Philip Purcell, who has faced calls to quit from former top executives at the firm. It marks a retreat by Purcell, who has defended the 'financial supermarket' policy as other major banks changed course.

The move is designed to placate critics who have taken newspaper ads attacking his management, arguing that he should have focused the business on the morelucrative institutional securities business.

Discover has more than 50m credit card holders in America. There are more than a million Morgan Stanley cardholders in Britain, about 1% of the market. The Discover unit is thought to be worth between $9bn (£4.8bn) and £14bn.

The decision reverses the strategy the bank has pursued since 1997 when Dean Witter Discover bought Morgan Stanley. Competitors have already retreated from the once-vogue financial supermarket idea, selling or spinning off non-core businesses.

Purcell did not detail how many shares of Discover stock would be distributed to shareholders for each existing Morgan Stanley share. But he said the division would be worth more as a separate company than as part of a big securities firm. The spin-off should happen within three to six months.

Purcell also moved to strengthen the presence of the investment banking and securities side at group executive level with the appointment of Zoe Cruz and Stephen Crawford to the group board.

The pressures on Purcell have stirred rumours that the group could fall prey to a rival. Sir David Walker, chairman of European banking arm Morgan Stanley International, attempted to dampen that speculation today, saying: 'I'm confident that with the new team in place we can execute on the strategy that exists, on which there is full agreement, and execute it better than an outside bidder would be able to do.'