Morgan Stanley may spin off card unit

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April 5: Morgan Stanley’s board, which sat quiet for a week as retired executives and shareholders demanded the ouster of chairman and chief executive officer Philip Purcell, took steps to relieve the pressure by offering yesterday to sell the company’s credit-card unit.

The directors, led by Mr Purcell, are considering a spinoff of the Discover cards division, a business that one analyst estimates may be worth $14 billion.

Yesterday, the board of the world’s second-biggest securities firm also wrote in a letter to Morgan Stanley’s 53,000 employees that “there is no fair or compelling case for a change in the CEO.”

A sale of the credit-cards unit would mark a retreat for Mr Purcell, 61, who said in a March 29 interview that Morgan Stanley didn’t need to change its strategy because the “trend lines in every business have good growth.” Discover reported first-quarter revenue of $996 million, representing 14% of Morgan Stanley’s total.

Selling Discover is “a good first step,” said Philip Orlando, who helps oversee about $200 billion at Pittsburgh-based Federated Investors Inc., which holds 3.6 million Morgan Stanley shares.

“It’s a sacrificial lamb that Purcell thought would be enough to stanch criticism from both inside and outside the firm. We’ll have to see if everyone feels that way.”

Shares of Morgan Stanley rose 2.5% yesterday to $58.30 in New York Stock Exchange composite trading. The stock fell 26% in the past five years, trailing the 49% gain of the 12-member Amex Securities Broker/Dealer Index.

After surviving at least two internal challenges to his leadership during the past eight years, Mr Purcell is now facing a public-relations battle with external critics led by former chairman S Parker Gilbert, 71, who are seeking his resignation.