When Morgan Stanley and Dean Witter Discover announced their merger this year, many on Wall Street speculated about a possible culture clash between a white-shoe investment-banking firm and its new "9-to-5" retail partner.
Already, a push to sell Morgan's IPOs is making that difference clear. Dean Witter brokers say a new work ethic is descending on them, and they're expected to take down an unexpectedly large portion of Morgan's IPOs.
"Morgan is giving us more stock than we know what to do with," one broker says. "There are more deals than you can imagine."
Brokers are expected to place the stock or be penalized on future offerings, some reps say. One rep says his manager called one weekend expecting him to place IPO orders early Monday. Another describes weekday "mystery secondaries" where brokers don't learn which company is offering stock until 4 p.m., after which orders must be placed within an hour.
A "retention index" tracks branch offices and brokers who flip stocks. Those who do might have their future IPO allotment cut or suspended, one broker says. And the firm uses a "penalty bid"-a provision many firms include in underwriting agreements that cancels commissions if an IPO stock is flipped. Underwriters such as Morgan don't like stock flippers because the firm has to buy back stock to stabilize the secondary market price.
David Menlow, president of the IPO Financial Network in Springfield, N.J., speculates Morgan is using Dean Witter reps to pursue bigger deals. "They are probably trying to move on to the next level, which is to take on larger underwritings and possibly not have to bring in as many other brokerage firms to help them distribute the shares," Menlow says.
Reps aren't complaining, though. "I don't know anyone who's [complaining] about it other than the older guys who used to flip stocks," a rep at the firm says. "We are able to give the public what they couldn't get before, and that's good, high-quality deals."
However, another Dean Witter veteran worries that younger reps at the firm will grow up doing deals instead of gathering conservative assets. Selling deals "is not the Dean Witter culture," he notes.
Morgan Stanley Dean Witter raised $8.35 billion in 55 deals through Aug. 22, according to Securities Data Co., placing it third behind Merrill Lynch and Goldman Sachs. The average gain on the first trade of a Morgan IPO has been about 25% during the past several years, according to Menlow.
Morgan Stanley officials could not be reached for comment, and Dean Witter did not return calls.