Morgan Stanley, Dean Witter to Form Giant Financial Firm
Marriott, Anne, The Washington Times (Washington, DC)
In a deal likely to rewrite the traditional pecking order in American finance, Dean Witter, Discover & Co. agreed yesterday to buy Wall Street investment bank Morgan Stanley & Co. in a $10 billion stock merger that shatters all records for the securities industry.
The deal combines Dean Witter's extensive retail brokerage network, which sells stocks and bonds to the public, with Morgan Stanley's corporate merger and securities businesses to create one of the world's largest all-purpose investment banking houses.
The immediate consumer impact of the deal may be small, but analysts said the combination both reflects and fuels the populist investor revolution wrought by the rise of mutual funds, extending stock ownership to ever-growing ranks of small investors and changing forever the balance of power between Wall Street and Main Street.
Proud Wall Street names such as Morgan Stanley, a direct corporate descendant of the financial empire built by J.P. Morgan, are feeling the need to link with mass retail brokers such as Dean Witter, which also boasts the country's third-biggest credit-card operation, to tap into the mutual fund boom.
"While it's a great day for [us] and our clients, it's probably more gray and rainy for some of our competitors," said Philip J. Purcell, Dean Witter's chairman and chief executive. "We have a very clear vision of our future. We are bent on creating the pre-eminent financial services firm globally."
Analysts said yesterday's deal could set off a chain of similar mergers, with the stocks of regional investment banks, such as Baltimore-based Legg Mason, up sharply yesterday on speculation of further mergers.
"This is the continuation of a trend where investment banks need to partner up with larger-capitalized institutions," said Stephen Willard, a lawyer at Gibson, Dunn and Crutcher in the District.
"I think it might touch off more deals in a similar fashion," said Pete Davis, a partner at the consulting firm Booz, Allen & Hamilton Inc. The marriage of a pure institutional firm with a straight retail broker is "a move into an integrated firm model" that rivals will have to consider, he said.
Morgan Stanley President John J. Mack said the securities industry's move toward consolidation spurred the companies to combine their strengths early. He said only those firms with a strong global presence and leading marketing positions will survive.
Crumbling regulatory barriers have enticed many commercial banks to jump into investment banking the past few years, analysts said. The trend will continue into the next decade as global competition intensifies. …