Cashing in on Credit Card IPOs: Morgan Stanley to Spin-off Discover

Mar.25.07 | About: Morgan Stanley (MS)

Morgan Stanley (NYSE:MS) finally made a decision on Discover credit card operations. Discover, the fourth largest debit and credit card network, will be spun off and shares would be distributed to the investment banks shareholders.

Based on the available information, Discover has 50 million cardholders under its name, which is ranked fourth behind Visa, Master Card (NYSE:MA) and American Express (NYSE:AXP).

In June 2006, MasterCard issued a successful IPO and as of today has an almost 200 percent jump in its stock price. Later last year Visa, the largest credit card issuer, also announced its plans to go public this year.

Investors seem to have a positive reception for credit card IPO'S . I guess, the rationale could be that plastic is here to stay and they are life line of American economy.

Seems like Morgan Stanley wants to cash in on that investor appetite for credit card IPO's.

I have my doubts about the success of Discover Card as a stand alone. Discover is small fish in a big pond and it will not be able match up when industry comparisons are put to test with Visa and MasterCard; investors will start losing interest in Discover once they start putting out quarterly numbers after what may be a decent IPO.

Disclosure: Author has no position in any of the above-mentioned securities