Morgan Stanley, Dean Witter, Discover & Co. is selling the controversial credit card program it has offered with NationsBank for four years.
The Prime Option MasterCard is on the block "to allow Morgan Stanley, Dean Witter to focus on its highly successful Discover card and Novus brands and to aggressively pursue new opportunities," said Morgan spokeswoman Beth Metzler.
NationsBank is interested in buying Morgan's stake of the portfolio, added Ms. Metzler. However, NationsBank declined to comment on the pending sale except to say that "an agreement has not been signed."
Unlike the bevy of credit card portfolios that have been sold recently, Prime Option stands out because of its bitter history.
Prime Option was conceived in 1990 and was meant to be what was then Dean Witter, Discover & Co.'s ticket into the Visa U.S.A. and MasterCard International organizations.
After years of contentious litigation, primarily between Dean Witter and Visa U.S.A., whose rules banned Dean Witter from issuing the Visa brand, Dean Witter struck a deal with NationsBank and MasterCard International to market Prime Option cards. MasterCard has a similar rule to Visa's, so NationsBank issued the Prime Option cards.
The details of the arrangement between NationsBank and Dean Witter have been shrouded in mystery from the start, in part because MasterCard and NationsBank were criticized for giving Dean Witter "backdoor" access to the bank card network.
Dean Witter fought bitterly for this right, including a failed attempt to get its antitrust lawsuit against Visa heard by the Supreme Court.
During that campaign, Robert H. Bork, the former Supreme Court nominee, joined Dean Witter's legal team in 1995.
Morgan's commitment to the Prime Option product, and its subsequent exit from the business, "could mean that (the portfolio) is not very profitable," said Anita Boomstein, a partner at Hughes Hubbard & Reed.
"People are not looking to sell good performing assets in today's environment," added Donald M. Berman, president of Cardholder Management Services, Plainview, N.Y.
Moreover, Ms. Metzler said that the arrangement with NationsBank "doesn't allow us to own 100% of the portfolio."
NationsBank apparently holds some of the Prime Option receivables and then sells some of them to Mountain West Financial, a subsidiary of Morgan.
David Robertson of the industry newsletter The Nilson Report estimates that Prime Option has generated $1.27 billion of receivables for Mountain West Financial, which controls the majority of the portfolio.
NationsBank's share of the portfolio is not known, but Mr. Robertson believes Prime Option represents an increasingly smaller percentage of NationsBank's card loans as the superregional bulks up through acquisitions.
"Prime Option never materialized to be the home run Dean Witter trumped it up to be," Mr. Robertson said.
In court, Dean Witter argued that Prime Option, a no-fee card that allows customers with balances to revolve new purchases at a lower interest rate for one billing cycle, was an innovative product that helped consumers manage their debt.
Prime Option's launch was delayed for several years because of the litigation. By the time it hit the market in 1994, low-rate, no-annual-fee products were common.
"If Prime Option had been launched earlier, I believe it would have been more profitable," Mr. Berman said.