The Morgan Stanley - Dean Witter Merger

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Case Details:

Case Code : BSTR209
Case Length : 19 Pages
Pages Period : 1997-2005
Organization : Morgan Stanley & Company; Dean Witter, Discover & Company
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Industry : Investment Banking and Financial Services

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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A Mega Merger Contd...

After the merger, Purcell and Mack announced, "The combination of these three powerful and distinctive brands will create a global powerhouse with unmatched origination and distribution skills and a unique balance between institutional and individual investor capabilities."5

The stock markets reacted positively to the news. On the day the merger was announced, the Morgan Stanley stock rose by 14% to US$ 65.25 and that of Dean Witter by 5% to US$ 40.62. Ten months after the merger, the name 'Discover' was dropped and the company was called Morgan Stanley Dean Witter. Initially, the merger seemed to be successful. However, there were glaring differences between Morgan Stanley and Dean Witter, especially on the culture front, and these persisted. A few years after the merger, differences between Purcell and Mack came to light and this led to the ouster of Mack in 2001. The merged company could not escape the bear run in the market in the early 2000s.

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The total revenues of the company dropped from US$ 44.99 billion in 2000 to US$ 32.93 billion by 2002. Net revenues dropped from US$ 25.99 billion to US$ 19.07 billion during the same period. Purcell was also criticized for his management practices, which had led to the exodus of several key executives from Morgan Stanley. These events culminated in Mack returning to the company in 2005, replacing Purcell.

Background Note

Morgan Stanley

Morgan Stanley was founded in 1935 as an investment bank by Henry Morgan and Harold Stanley, former employees of JP Morgan,6 after the Glass Steagall Act,7 which prevented financial institutions in the US from carrying out both commercial and investment banking activities, came into force.

To comply with the Act, JP Morgan & Company had to split its securities and commercial banking businesses and this led to the establishment of Morgan Stanley as a separate entity...

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5] "Morgan Stanley and Dean Witter, Discover Complete Merger to Create the Preeminent Global Financial Services Firm,", June 02, 1997.

6] Incorporated in 1800s by Janius S. Morgan, a merchant banker, JP Morgan is one of the leading banks in the US. In 2001, JP Morgan merged with Chase Manhattan to create the second largest bank in the US. In July 2004, JP Morgan bought Bank One Corporation, which created an entity with combined assets of US$ 1.1 trillion. For the fiscal ending December 2004, the revenues of the merged entity stood at US$ 52,541 million and net income at US$ 6,544 million.

7] There are two separate laws under the Glass Steagall Act. These laws were enacted after the stock market crash in 1929. The second part of the Act enacted in 1933, separated the activities of commercial banks and securities firms and prohibited commercial banks from owning brokerage firms.


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