I just chatted with Gary Townsend, CEO of Hill-Townsend Capital, based in Chevy Chase, Md. He had some interesting thoughts on the possibility of a Wachovia—Morgan Stanley merger. Excerpts:
How likely is a Wachovia-Morgan Stanley merger at this time?
"Well, I think you've got two motivated parties. I think the chances of it are reasonably strong."
How much time pressure is there to get a deal done?
"My own view is that time is of the essence. No reason to wait until the paint dries."
Are these companies essentially doomed as independent entities in their current form?
"Doom is an interesting choice of words. Mergers and acquisitions happen all the time and it's not because two companies are doomed. It's because of the advantage in combining. And in this case I think we've got two companies that have plenty of motivation."
What would be the future earnings potential of a combined Wachovia-Morgan Stanley?
"It should be very strong. Hard to say what the companies' capital structure would look like and how many shares outstanding you would have at the end of the day, but I think the combination of the two companies would find lots of synergies, particularly in the investment management operations. It seems to me you could put together quite a bit of overlapping operations if you were to merge the two companies. And of course you have the retail bank providing better funding to Morgan Stanley's operations."
So you think that would be a good move for Morgan Stanley?
"Well they are comparable sized organizations.You could retain the Wachovia name for the deposit franchise and they do have a mortgage-origination capability that would serve Morgan Stanley well in future years if not immediately."