The scuttlebutt around Morgan Stanley Dean Witter & Co. after each directors' meeting is whether the board decided to buy Chase Manhattan Corp. While it's not clear whether there's any justification for such talk, a strong case can be made for such a deal.Morgan Stanley Dean Witter has become the powerhouse of investment banking; it is adored by investors and its return on equity and its growth in per-share earnings have been sterling, as evidenced by its No. 3 position on this year's U.S. Banker ranking of the 100 largest banking companies.But could it be stronger still? It's price-to-earnings ratio on April 10 was still below Citigroup's-16.6 versus 18.2-and a big part of the difference may be because Citigroup, which combines commercial and investment banking, is seen as a more diversified company. A combination with Chase could give Morgan Stanley greater breadth.Indeed, both Morgan Stanley and Chase are powerhouses in the wholesale banking world, and a combination of Morgan Stanley's underwriting strengths with Chase's funding abilities and customer base could create a formidable organization. On the retail side, Morgan Stanley's Dean Witter brokerage network would align neatly with Chase's consumer businesses, and substantial economies of scale could be had through combining their credit card activities.It all makes sense with one caveat: Can the cultures be meshed? That's the big unanswered question.Also, should Morgan Stanley acquire Chase or should it be the other way around? At press time, Morgan Stanley's market capital, at $85.6 billion, was substantially higher than Chase's, $62.35 billion, which means it might make sense for Morgan Stanley to take over Chase. But Chase has a banking charter, so it might be preferable for Chase to acquire Morgan Stanley. Such details don't make too much difference. The real issue is, who will run the show? Both CEOs are about the same age and neither is about to retire. Morgan Stanley's Philip Purcell is 56 and Chase's William Harrison is 55.Could they find a way to work together? The omens are not good. Citicorp's merger with the Travelers Group in 1998 to form Citigroup seems to have worked well, but the co-CEO formula didn't, with Traveler's Sanford Weill having pushed out Citicorp's John Reed. But Morgan Stanley and Chase tend to be more gentlemanly institutions-maybe a compromise could be worked out.
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