The Morgan Stanley and Dean Witter, Discover Co. merger has won rave reviews from ratings analysts, who suggest that it is just a matter of time before more such mergers occur.
Last week, Duff & Phelps Credit Ratings Co., which doesn't rate Morgan Stanley debt, but does cover Dean Witter Discover, placed the retail broker on positive rating watch, because of the increase in assets and competitive advantages the deal will bring.
Duff & Phelps currently rates Dean Witter senior debt A-plus and its commercial paper D1. Duff's rating for Merrill Lynch is AA for senior debt, AA-minus for its preferred stock, and D1-plus for commercial paper.
"I wouldn't be surprised if there was further merger activity because you need size and economies of scale in investment banking and corporate financial services," said Christopher Reed, a Duff analyst. "The domestic market is so competitive, and a lot of investment banks are finding their opportunities overseas."
The merger creates the only investment firm on Wall Street that has a credit card operation, added Mr. Reed.
"The credit card unit is unique, and it is a fast-growing unit," he said. "They intend to take the Discover card international, so the opportunity to expand overseas is attractive.
"From a profitability standpoint, it could give them an edge," he added.
Credit analyst Haig Nargesian of Moody's Investors Service, which covers both companies, said it also put the companies' debt on positive watch.
"We are looking at the combining of Morgan's global banking business with Dean Witter's domestic distribution capability," said Mr. Nargesian."That linkage has possibilities of creating real value."
Moody's rates Dean Witter debt A2, and Morgan Stanley's A1. Both ratings are two notches below Merrill's Aa3 rating.
Neither ratings company claims that the merger is without risk. Dean Witter and Morgan Stanley will have to contend with culture clash and retaining key people, Duff and Moody's said.
Mr. Nargesian said the lack of overlap in operations means there will be few clashes among employees, and he said that heavy insider ownership of stock would stem departures.
Several analysts also noted that a similar merger, Shearson's attempt to link its retail network with Lehman's institutional one, was unsuccessful.
