NEW YORK - Morgan Stanley Dean Witter & Co. is balking at joining a group asked to provide a $2 billion credit line to Genuity Inc., an Internet service provider spun off from GTE Corp.
Goldman Sachs Group Inc. and Merrill Lynch & Co. are also resisting joining the group, because they do not want to enter a marginally profitable business that ties up capital, people familiar with the loan said.
Morgan Stanley, the biggest securities firm by market value, helped arrange a $1.91 billion initial public offering less than two months ago. Since then the firm has provided research and trading for Genuity.
Lending the Burlington, Mass., company $150 million is another matter.
Genuity's gambit marks the latest effort by corporate borrowers to exploit competition between Wall Street and commercial banks to secure financing.
Citigroup Inc.'s Salomon Smith Barney unit, which co-led Genuity's IPO, Chase Manhattan Corp., Deutsche Bank AG, and Credit Suisse First Boston agreed to extend the credit lines, people familiar with the loan said.
"The movement of banks into the investment banking business is going to put pressures like this on securities firms," said Dean Eberling, an analyst at Keefe, Bruyette & Woods Inc. in New York.
Genuity has leverage. To expand its network, it plans to hand out between $11 billion and $13 billion of capital markets business over the next five years, according to its IPO filing with the Securities and Exchange Commission.
Spokeswoman Susan Kraus said the company, which has a market value of $8.4 billion, is asking banks to provide a credit line.
Corporate demands for credit lines provide a window of opportunity for banks such as Chase Manhattan to increase their investment banking revenue.