Investment banking group Morgan Stanley has announced its intentions to spin off its Discover credit card division following the publication of record profit for the final quarter of its current fiscal year, in which the bank enjoyed a 44% increase in full-year profits.
The results exceeded market expectations, taking profits to a record high of $7.5 billion, boosted by a series of mergers and acquisitive activity. Revenue increased to $8.62 billion from $6.96 billion a year earlier, a 24% increase.
Although Discover has recently improved its profitability, Morgan Stanley has been under considerable pressure from shareholders to separate from the card unit for the past few years.
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 stand-alone, well-capitalized companies, said Morgan Stanley chairman and chief executive John Mack.
The spin-off will allow Discover to continue building on its strong brand and significant scale. We also believe the spin-off will unlock considerable value for the shareholders of Morgan Stanley.
Morgan Stanley will distribute Discover shares to shareholders during the third quarter of fiscal 2007 on a tax-free basis.
This is very good news about Discover, Sanford Bernstein analyst and former Morgan Stanley treasurer Brad Hintz is quoted by Reuters as saying. Discover was slow growing. The longer you hung on, the more it reduced the value of the company.