A big piece of the new brokerage giant that will emerge from the Dean Witter-Morgan Stanley merger doesn't seem to fit with the two companies' securities-oriented competencies.
That piece-the Discover card business-was started by Sears, Roebuck and Co. a decade ago and, as part of Sears' 1993 Dean Witter spinoff, grew to become the second-largest U.S. credit card lender.
Continually subject to card industry speculation about how long it could sustain itself independent of the MasterCard-Visa structure, Discover is likely to attract renewed attention as an acquisition or spinoff candidate.
Monoline credit card companies like MBNA Corp. emerged from bank ownership to attain high market capitalizations. Another, First USA Inc., recently agreed to be acquired by Banc One Corp. for five times its book value.
Another diversified financial company, Providian Corp., is getting in on the action by spinning off its San Francisco-based bank card subsidiary, Providian Bancorp.
Bank card consultant James Shanahan said Dean Witter's Discover-Novus organization, with about 40 million cardholders and two million card- accepting merchants, could fetch between $5 billion and $10 billion.
"Dean Witter has the financial resources to do what they want with that business," said Mr. Shanahan, a partner in Business Dynamics Consulting, Nyack, N.Y. Combining with Morgan Stanley "doesn't enhance that business."
Dean Witter and Morgan Stanley executives were talking very differently Wednesday, underscoring their commitment to cards as a growth business and a potential vehicle for international expansion.
"Credit cards are a very important component to us and will continue to be," said Dean Witter chairman and chief executive officer Philip J. Purcell, who would get those same titles at Morgan Stanley, Dean Witter, Discover & Co. "You can expect to see us invest in and grow the card business."
When they received news of the merger announcement, some analysts said they thought Dean Witter's card subsidiary, Novus Services Inc., would likely be spun off or sold.
But Mr. Shanahan pointed out "there is a fierce loyalty to that business" within Dean Witter and pride in the fact that it has become the biggest program in terms of number of cards.
For 1996, Dean Witter reported a 15% increase in managed loans, to $36.6 billion, but credit services net income was up only 1%, to $450 million.
While Morgan Stanley has never gotten close to a mass-market card operation, it has a securities presence in 32 countries. Mr. Purcell said that will provide Dean Witter with a global base from which to operate.
PaineWebber analyst Gary Gordon said the merger may help Dean Witter internationally as it becomes part of a bigger company with a larger capital base.
Moreover, John J. Mack, president of Morgan Stanley Group, who will be president of the combined company, said he sees an opportunity to market more financial services to Dean Witter's 39 million cardholders.
Riverwoods, Ill.-based Novus Services issues credit cards only in the United States. The company has hinted at its interest in markets abroad, but it lacks the millions of acceptance locations of MasterCard, Visa, and American Express.
"International expansion and partnerships make sense to us," said Thomas R. Butler, president of Novus Services Inc., said in an interview in January. He said Dean Witter was thinking about international penetration from a "planning perspective."
