Morgan Stanley Spinning Off Discover

The move comes amid a growing war of words about CEO Phil Purcell.
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Morgan Stanley


will distribute a tradable interest in its Discover credit card operation to existing shareholders, hiving off the unit amid a din of recrimination among a handful of major shareholders.

The spinoff, which was approved by directors, will put a new, publicly traded company in shareholders' hands at a time when several big Morgan Stanley owners are calling for the ouster of CEO Philip Purcell. Purcell is the architect of the Dean Witter Discover unit and used it to merge with Morgan Stanley eight years ago.

Discover claims 50 million credit card customers and $48 billion in managed loans. And it could be poised to expand its reach in the wake of a Supreme Court decision last year that faulted business practices at Visa and Master Card.

"The rationale for this action is twofold: One, to maximize the shareholder value in the Discover Card division, and allow management of that business to capitalize on the momentum, both in performance and in the opportunities opening up in the payments market, and two, to further intensify our focus on the high-return growth opportunities within our integrated securities businesses," Purcell said in a statement.

Purcell's critics, eight former employees of the company's investment bank, have agitated for his removal as CEO. They argue that Morgan Stanley's share price was left out of last year's rally in financial stocks and is hamstrung by too-diverse a business portfolio forced on shareholders by the 1997 merger with Discover.

Morgan Stanley also said Stephen Crawford and Zoe Cruz, two executives named co-presidents last week, will join its board. According to media reports, the board also stood by Purcell in a letter to employees.

"There is no fair or compelling case for a change in the CEO, an action that would involve risk and discontinuity," the letter reportedly read. The campaign against him is "gratuitous, unfair and alarmist."