In a statement, Morgan Stanley says it will retain the Discover unit "as an important contributor to shareholder value" and will sell its non-core aircraft-leasing business, AWAS, instead.

Purcell said in April that the bank had decided to sell Discover and at the time analysts estimated the value of the business - which claims more than 50 million cardmembers and $48 billion in managed loans - at between $8 billion and $13 billion.

But Mack, who became chairman and CEO of Morgan Stanley at the end of June, has now decided to retain the unit, saying that it is a "successful franchise with growth opportunities" that provides a consistent stream of stable, high-quality earnings and substantial cash flow and diversifies the company's earnings.

Mack acknowledged in the statement that the US credit card industry is currently in a "low-growth stage" - about three to five per cent annually - and the rising cost of funds could put additional pressure on Morgan Stanley's earnings in the short term.

But he adds that the unit's $1.27 billion contribution to 2004 pretax earnings - 19% of Morgan Stanley's total - along with potential growth via the business's credit and debit networks, led to the decision to retain the business.

Discover acquired the Pulse debit network in January 2005, which has more that 4100 financial institution customers and the unit has also inked an alliance with China UnionPay, China's largest payment network with 800 million cards.

Furthermore, Morgan Stanley says the unit is poised for new growth due to legal victories last year that forced MasterCard and Visa USA to allow member banks to issue competitors' cards for the first time.

"Given the strengths of Discover, its powerful brand name and its continuing strong ROE, retaining the business and investing in it over time give us a good chance to create value through domestic growth in excess of industry trends, growth in international profit and the unique opportunities in the payments business," says Mack.