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Why Morgan Stanley minus Van Kampen makes sense

If I were a management consultant, I'd be getting paid big bucks for what I'm about to tell you.

If I were a management consultant, I’d be getting paid big bucks for what I’m about to tell you.

But since I’m a financial writer and you’re visiting our free website, you will receive my keen insights and sheer brilliance without paying a dime (that’s self-directed sarcasm, readers, so don’t go posting comments about how I’m a stuck-up moron).

Here goes:

There is no synergy in the financial services business.

Well, maybe there’s a little. But it’s only a piffle, compared to the billions wasted by Citigroup, Bank of America and others over the years in search of the cornucopia of profits to be earned from offering a soup-to-nuts menu of financial services products.

If you merge a bank, money manager and brokerage firm, and integrate the whole shebang, profits will flow like the Mississippi — or so went the thinking of the billion-dollar brains at the top of the nation’s giant financial services companies and their enablers at McKinsey and other consulting firms.

Those giants pushed for the elimination of Glass-Steagall, which permitted the creation of today’s mega-banks.

The reality has turned out to be a far cry from the promise.

In addition to becoming taxpayer-supported behemoths that are too big to fail, the financial giants tend to do a pedestrian job in their core businesses.

One reason is that they haven’t been able to eliminate their internal P&L and product silos.

Second, much of their technology and systems remain balkanized.

Some giants, like JPMorgan Chase, have done a better job of integration than others.

They also weren’t hurt by getting a sweetheart deal on Bear Stearns.

But the dream of a seamless, all-in-one financial services giant that fills a client’s every financial need (and permits cross-selling beyond anyone’s wildest imagination) remains a chimera.

The truth is, different skills, talents and temperaments are required to manage commercial banking, investment banking, insurance and money management.

Neither shareholders, employees nor taxpayers want a gung-ho trader sitting atop a commercial bank or a risk-obsessed insurance veteran guiding a bunch of deal-oriented investment bankers.

Morgan Stanley’s desire to sell its Van Kampen mutual fund business is the latest confirmation that straying from one’s financial knitting doesn’t pay.

Morgan Stanley (which, as you may remember, sold off its Discover credit card operation a few years ago) bought Van Kampen in 1996 for $1.12 billion. The aim was to bolster its mediocre investment management business.

Today, Morgan Stanley remains what it was more than a dozen years ago — a force to be reckoned with in investment banking, and a mediocre investment manager.

It says it wants to keep the institutionally oriented Morgan Stanley Investment Management business and offload the Van Kampen retail business.

The move makes sense. Morgan Stanley shouldn’t waste its energy or capital on money management. Leave that to the money management experts.

Another sign of management enlightenment are reports that Bank of America has been shopping Columbia Management Group.

Digesting Merrill Lynch and the many commercial banks it has swallowed in recent years should keep BofA management busy for quite some time, without the distraction of running an asset management business.

If this slimming down of the financial giants is a result of CEOs having learned some humility through the recent downturn, that’s not bad.

The bigger question is whether they’ll heed the lesson during the next boom, when the expansion itch will flare again.