Morgan Stanley's on-again, off-again plan to spin off its Discover credit-card business, one of the largest in the world, was back on again yesterday, cheering investors who think it could be worth $13bn (£6.6bn) as a standalone business.
Discover, which has 50 million cardholders in the US and owns the Goldfish credit-card brand in the UK, has long seemed an odd fit with Morgan Stanley's powerful investment bank.
A previous plan to split out Discover was cancelled last year when John Mack took over as chief executive.
Yesterday, he said he had changed his mind. "Given the record results and significant momentum both in our securities business and our cards and payments business, we have concluded, after our most recent strategic review, that they can best execute their growth strategies as two standalone, well-capitalised companies," Mr Mack said. "The spin-off will allow Discover to continue building on its strong brand and significant scale."
Mr Mack's ousted predecessor, Philip Purcell, had conceded a spin-off of Discover only after years of pressure from shareholders who believed its slower growth was holding down the value of the group's shares.
In 2006, however, Discover's pre-tax income was up 72 per cent to $1.6bn, thanks to about $50bn in credit-card balances and loans. Bad debts overall continued to fall, although it had to raise provisions in the UK because of the weakening creditworthiness of customers there.
As a standalone company, Discover could be worth up to $13bn, compared with the sub-$10bn value given to the business now. The spin-off could unlock the value of Discover's expanding payments business, which processes credit and debit-card transactions. Shares in its rival Mastercard are up 140 per cent since their flotation earlier this year.
Mr Mack - whose $40m pay package, revealed last week, is Wall Street's biggest ever - has been able to boast a turnaround in Morgan Stanley's fortunes. The investment bank has halted the haemorrhage of staff that undermined his predecessor, and yesterday it revealed a record annual profit of $7.5bn from continuing businesses.
It said its annual bonus pot for the year was close to $14.4bn, up 27 per cent on the money it distributed among employees worldwide in 2005.Reuse content