NEW YORK -- Morgan Stanley chief executive John Mack made his first major move to revamp the Wall Street firm yesterday, saying the company would not spin off its Discover Financial Services credit card arm, as was considered under former chief executive Phil Purcell.
Critics have claimed the credit card division has been only modestly profitable and unrelated to the company's high-end financial services. Discover has generated strong cash flow and consistent earnings for the company, however, giving Morgan Stanley liquidity for its other investment banking, asset management, and brokerage divisions.
The company's board instead chose to sell Morgan Stanley's aircraft-leasing division, AWAS, considered a noncore asset as Mack focuses on traditional investment and credit divisions. The company will take a $1 billion charge in the third quarter to write down the value of AWAS to what it believes will be a compelling sales price -- $2.5 billion to $3.3 billion.
''Discover is a unique and successful franchise," Mack said. ''It is a reliable stream of high quality earnings and a broad capital base, and it generates a large amount of free cash flow. Discover is a viable asset for the firm, and has the potential to grow and create value for our shareholders."
The firm's shares fell 11 cents to close at $52.85 on the New York Stock Exchange. The shares fell 5 cents after the disclosure in after-hours trading.
Under Purcell's leadership, Morgan Stanley said in early April that it was considering a spinoff of Discover. The move received a mixed greeting from analysts and observers. Some felt it was Purcell's way of assuaging his critics that he was ignoring Morgan Stanley's traditional banking business in favor of the Discover and retail brokerage arms that he headed at Dean Witter prior to its 1997 purchase of Morgan Stanley.