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Morgan in AmEx talks?
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June 11, 2001: 2:55 p.m. ET
Venerable Wall St. firm reportedly keen to add AmEx's card business
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NEW YORK (CNNfn) - Venerable Wall Street firm Morgan Stanley has engaged in on-again, off-again merger discussions with American Express Co. for the past year, according to press reports Monday.
New York-based Morgan Stanley has approached American Express about a possible merger, the weekly financial publication Barron's reported. Morgan is interested in AmEx's legion of financial advisers and the $230 billion under management at American Express, as well as AmEx's high-end card business.
Nothing is imminent but the discussions were partly behind the departure of Morgan Stanley President John Mack earlier this year, Barron's said.
Mack resigned as part of a wider reshuffling among top management. The departure bumped Philip Purcell, who came from retail brokerage Dean Witter and Co., into the chief's spot of the powerhouse investment bank.
New York-based American Express declined to comment while Morgan was unavailable for comment.
News of the reported talks failed to gain Wall Street approval as AmEx (AXP: up $0.42 to $41.41, Research, Estimates) shares gained only pennies in afternoon trading while Morgan Stanley (MWD: down $2.34 to $62.25, Research, Estimates) dropped more than 4 percent.
A merger would combine AmEx's charge card business with Morgan's Discover unit. The high-end AmEx unit runs at twice the operating platform of the Discover business, said analyst Meredith Whitney of First Union Securities Inc.
"There is a tremendous amount of fat that could be saved," she said.
A merger with American Express, which has $52 billion in market value and is expected to earn $2.8 billion this year on $23.7 billion in revenue, would keep Morgan a formidable player on the global landscape, Barron's said.
AmEx Financial Advisors is a great business that would be attractive to anyone, but Morgan would be paying a premium for the card business, Whitney said.
"AmEx's margins are dropping like stones. And a second-half recovery isn't [likely] to happen," she said.
Last week, Morgan was rumored to be in talks to buy St. Louis-based A.G. Edwards Inc., the nation's seventh-largest retail brokerage firm with more than 7,100 financial consultants and 700 branches. A purchase of A.G. Edwards (AGE: down $1.96 to $44.80, Research, Estimates) would make Morgan Stanley the largest brokerage, by number of brokers, surpassing rival Merrill Lynch.
Whitney maintained a price target of $68 for Morgan Stanley.
An AmEx purchase would include considerable more cost savings and would make more logic than an A.G. Edwards transaction, Whitney said. "American Express's future prospects are not that great," she added. "It makes more sense for AmEx to be part of a larger distribution." 
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