Time to Demerge

15 June 2005



Purcell Departs Morgan Stanley

Philip Purcell, the head of Morgan Stanley Dean Witter, is quitting after a long campaign against him by several former investment bankers who are shareholders. Rather than claim he was going to spend more time with his family or that he was off to pursue other opportunities, he quit because, as he said, he couldn’t fix things.

His letter of resignation was most refreshing. He wrote, “It has become clear that in light of the continuing personal attacks on me, and the unprecedented level of negative attention our Firm—and each of you—has had to endure, that this is the best thing I can do for you, our clients and our shareholders.” Of course, he avoided the cause of the negative attention, which was the reason he is now out of work.

When Dean Witter merged with Morgan Stanley, it was hailed as a great opportunity to realize synergies between the white shoe bankers at MS and the Willie Loman hustlers at DW. In fact, the “merger of equals” was a joke, and Dean Witter’s boss, Mr. Purcell, made pretty sure he and his people ran things after he consolidated his power in 2001. The problem is that it was the Morgan Stanley banking operation that made the money and the Dean Witter faces that got the top flight careers.

As a result, the banking talent has been fleeing to greener pastures. Just last week, a 9-man team in the derivatives department packed up and joined Wachovia. These losses in personnel usually result in business leaving as well, and the bank has warned that second quarter 2005 earnings may be as much as 20% lower than second quarter 2004’s results.

With Mr. Purcell’s departure, the political winds have changed at the company, and it is likely that Dean Witter will be sold. The Discover Card credit card business, which has been losing market share for ages, is already being dressed up for sale. When the merger is finally undone, investors expect things will improve for the banking business of Morgan Stanley. At least, that is how one interprets the $1.75 increase in stock price between Friday when Mr. Purcell was boss and Monday when he wasn’t.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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