Picking a winning combination
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Picking a winning combination

Competition drove white-shoe Morgan Stanley and blue-collar Dean Witter into a merger. Could other improbable matches be on the cards? Michelle Celarier assesses the implications of the union that took everyone by surprise.

To hear Smith Barney chief executive officer James Dimon talk, the proposed merger between Morgan Stanley and Dean Witter Discover is one of the best things that could have happened to his firm. "It has legitimized everything we've ever done," beams Dimon, at 40 the youngest CEO on Wall Street. "In some small, peculiar way, it helps. It's hard to say Morgan Stanley Dean Witter makes a lot of sense without saying Smith Barney makes a lot of sense."

In the past, Smith Barney's retail investor focus has been disparaged by blue-chip investment bank competitors. Thus the decision of that most elite of such banks, Morgan Stanley, to join forces with down-scale retail brokerage Dean Witter, is no doubt a source of reflected glory at Smith Barney.

But there's little for Dimon to gloat over. Smith Barney has been the institution viewed ­ until now, perhaps ­ as Merrill Lynch's closest competitor in the lucrative retail business and a close rival in asset management through parent Travelers Group's mutual funds. Now the creation of a new colossus in the industry is causing domestically-orientated Smith Barney to rethink its strategy for building investment banking and research and expanding internationally.

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