Breaking up is hard to do

2 February 2005 By Rob Cox Follow @rob1cox

Amex added $4bn to its market cap by promising to break itself up showing investor dissatisfaction with the financial conglomerate model. Morgan Stanley should do the reverse and find a better home for its Discover credit card business.

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American Express said it plans to spin off its financial advisory and asset management business to shareholders later this year in a move that it hopes will put its core credit card unit in better shape to compete with MasterCard, Visa and Discover.

The advisory unit made about $700m in net income last year through the sale of financial products by its 12,000 advisors around the world. The business also oversees some $410bn of customer assets, including the UK's Threadneedle Asset Management.

Amex, whose market cap rose by some $4bn on the announcement, says once the demerger takes effect in the third quarter it will raise its return on equity targets for the rump company to near 30% from 20% today.

Goldman Sachs and Citigroup are advising Amex on the transaction.

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