ABS analysts are saying Discover Financial Services would likely increase its ABS issuance and become an acquisition target if spun off from parent company Morgan Stanley. The unit, championed by Morgan Stanley CEO Phillip Purcell, has come under fire from shareholders and, more recently, a group of dissident former Morgan Stanley executives has called for Purcell's ouster in paid advertisements.

Discover will "likely become a more active issuer in the ABS market," as a result of becoming a stand-alone entity, noted one sell-side analyst who could not be named commenting on another firm's unit. Discover has approximately $4 billion in ABS due to mature in 2005, and is expected to return to the ABS market to refinance all of that volume. In addition, several of Discover's primary ratings have already been placed on watch for a possible downgrade by Moody's Investors Service. The already negative ratings news means Discover will find it less effective to issue unsecured debt, the analyst added, and will possibly turn to securitization more frequently for financing because of the attractive funding costs.

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