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Last Updated: Dec 19th, 2007 - 13:17:15 |
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| The 2005 honoree of the America Ireland Funds is Phil Purcell (right), CEO of Morgan Stanley, at a Funds' dinner last February. |
Morgan Stanley, the second biggest securities firm in the US, began operations in 1935 after the Post-Depression Glass-Seagall Banking Act forced financial services firms to choose between commercial and investment banking (dealing in securities). J.P. Morgan, one of the most important banks in America, opted to operate as a commercial bank, while several J.P. Morgan employees, including Harold Stanley and Henry Morgan, split off to form an investment bank.
Henry Morgan was the grandson of John Pierpont Morgan, the most famous banker in American history.
Former Morgan Stanley Chairman S. Parker Gilbert 71, who is one of the Group of Eight former executives seeking the ouster of the current Chairman and CEO Phil Purcell, is a stepson of Harold Stanley.
Phil Purcell is an Irish American native of Salt Lake City and a graduate of the University of Notre Dame and the London School of Economics. He commutes from New York City to his home near Chicago where he headed the retail brokerage Dean Witter before it merged with Morgan Stanley in 1997.
Morgan Stanley has been a byword for WASP arrogance on Wall Street from its birth. It was the premier so-called "white shoe" financial house and it appears that Purcell's unwillingness to participate in the New York's toniest society circles, so important to the likes of Gilbert, are factors in the attempted coup d'état.
There are questions about Purcell's arrogant style and the bank's reliance on its investment business. However, the Group of Eight's promotion this week of one of their number, former president Robert Scott, for Purcell's job, indicates the personal nature of the campaign and the desire to wrest power from the hated Mid-Western impostor.
Many of the white shoe dissidents cashed in their chips when the business was merged and they have looked on in dismay as Purcell has pushed out consiglieres of the old guard.
Morgan Stanley's board whose members were largely appointed by Purcell, continue to support him.
"It's over; the board is with him," Jack Welch, former chairman of General Electric Co., said in an interview on business channel CNBC.
As part of their campaign, the dissidents got their adviser Greenhill & Co. to prepare an analysis of the company's financial and share performance, concluding that, Purcell is doing a very poor job. However, the former Morgan Stanley executives have offered no plan for change, than replacing Purcell with Scott.
On Friday, Purcell addressed about 600 of Morgan Stanley's London staff and on Wednesday, Scott told a meeting of shareholders in New York, that he could boost the firm's market value by about $30 billion, or almost 50%, by revamping its retail brokerage and asset management units.
Background:
For the past week, a soap opera has been unfolding at Morgan Stanley, one of America’s leading securities firms, with former executives seeking the ouster of the Chairman and CEO Phil Purcell, following senior executive promotions and departures.
The current atmosphere within Morgan Stanley must surely be one of rumour and intrigue as Purcell seeks to protect his position
Phil Purcell has said in a memorandum to staff that the "Sturm und Drang"* generated by the media campaign against him, being orchestrated by the eight former executives, was making it difficult to explain the management shake-up that has brought his leadership to a crisis.
"I do not believe it is in the custom of Morgan Stanley for any member of this firm - current or past - to risk a course of action that would damage our franchise," Purcell said. "I know that it was, in part, because of decisions I made that these men left the firm. But I believe - fervently - that these decisions are in the best long-term interests of each of you, our clients and our shareholders. I know that some of you are not quite convinced."
The Financial Times says that Bob Scott, one of the former Morgan Stanley executives leading the campaign against Purcell, pointed out that the group had sent a private letter to Morgan Stanley's board expressing their concerns about Purcell and their fear that he could react to the challenge to his leader-ship by removing more senior executives.
"The only answer we received to that letter was for Phil to act out our worst fears by retaliating against very senior people in the firm. Only then did we make our concerns public," Scott said, according to the FT.
It was reported on Tuesday that the group of former executives are proposing that Scott replace Purcell.
Scott, 59, spent a 33-year period at the firm and has served as its head of investment banking and chief financial officer, as well as president and chief operating officer.
A Morgan Stanley spokesman said the board is "well acquainted" with Scott and "is fully behind Phil and the management team."
"There is no fair or compelling case for a change in the CEO, an action that would involve risk and discontinuity," he added.
In a statement, Scott said his first priority would be to ask that former executives including Vikram Pandit, John Havens and Stephan Newhouse, former president, return to the company.
Scott added that he would "create an environment in which talent is recognized and supported and which encourages free and open discussion."
In the memorandum to staff, Purcell rejects claims by critics that Morgan Stanley's board has not challenged his leadership because it is not independent.
He writes: "Our board is, by design, one of the most independent on Wall Street. They can and will come to conclusions on their own. I am (and have been) perfectly comfortable with outside views of the firm that are different from my own."
Purcell has acknowledged that Morgan Stanley's returns have sunk to "the middle of the pack." Although 2004 net income rose 18%, to $4.5 billion, the performance lagged far behind Goldman Sachs Group's (GS) 52% profit rise and Lehman Brothers Inc.'s 39% increase.
Investment banking accounts for 62% of operating earnings while brokerage only contributes 6%.
Morgan Stanley has approved the sale of its Discover credit card business.
The board on Saturday authorized executives to seek a buyer for Discover, the fourth-largest credit card business in the US.
It's reported that directors expect the sale to net $8 billion to $9 billion,
Morgan Stanley's board also wrote to employees on Monday saying: "Unlike some of our competitors, our business base remains broad, lower risk and not as vulnerable to market shifts."
Earlier on Monday, in the Wall Street Journal, the eight former executives presented an open letter to Morgan Stanley employees via an advertisement.
"Many of you feel that there is an atmosphere of intimidation and fear at the firm, which restricts your ability to be heard," the letter says. "We therefore are encouraging the board of directors to create a vehicle through which you can express your views directly without risk of retribution."
(An atmosphere of intimidation and fear! This surely deserves a prize for hypocrisy. We doubt that these former execs would have taken kindly to such an intervention from the superannuated gentlemen who preceded them- Finfacts.)
The New York Times says that the attempted putsch against Phil Purcell may represent the final death rattle of a Wall Street era personified by the well-born, Ivy League-educated investment bankers who formed the core of Morgan Stanley during its heyday in the 1970's and 1980's.
Titans of their day, their impeccable bloodlines and easy society manners stood in direct contrast to the new breed of brooding, aloof Wall Street executives such as Phil Purcell and E. Stanley O'Neal, the chief executive of Merrill Lynch and the first African-American to lead a Wall Street investment bank.
Like Purcell, who merged his Dean Witter with Morgan Stanley in 1997, O'Neal is a Wall Street outsider. He experienced his own war with the entrenched elites at his firm when he declared an end to the notion of "Mother Merrill" as a clubby clique of brokers and bankers bent upon global expansion, regardless of the impact on the bottom line.
The eight retired Morgan Stanley executives rose to prominence when the firm was at Wall Street's epicenter. Such was its arrogance that until 1979 the firm would insist on being the exclusive underwriter on bond and equity deals.
Today, however, Morgan Stanley faces a drastically altered landscape, squeezed on both sides by large banks like Citigroup and nimbler, more downmarket institutions like Bear Stearns. As Morgan Stanley's stock price and allure have sagged, the group of eight has lashed out at Mr. Purcell, blaming him for the merger's failure with a degree of personal animus that seems contrary to their beloved class codes of discretion and public politesse.
Phil Purcell (61) made his name by launching the Discover credit card while at Sears. In 1997, Purcell headed brokerage Dean Witter and when it merged with Morgan Stanley, he succeeded in overcoming Morgan Stanley rivals for the top job.
The New York Times writes that for decades, the very idea of selling stock to individuals was seen by Morgan Stanley elites as second-class work. But with the rise of the retail investor in the 1990's, they saw that the merger with Dean Witter would be the perfect way for the firm to distribute its high-class funds and public offerings to small investors.
It was a radical notion, and one that even these men may now question as they see how Goldman Sachs, Morgan Stanley's archrival, has thrived by remaining true to its core trading and investment banking franchise. Goldman long ago spurned the idea of branching out into the types of retail businesses that have hobbled Morgan Stanley.
One of the former Morgan Stanley executives leading the campaign against Purcell is S. Parker Gilbert Jr., 71, Chairman of Morgan Stanley from 1984 to 1990 who has been quoted as saying in reference to Purcell’s commuting at weekends to a suburb of Chicago:
"If you run a big firm and you only are here a few nights a week, you miss things. The whole idea of these firms are relationships with other financial services firms and the New York corporate and social fabric."
Gilbert’s father had been a senior partner at J.P. Morgan and he is currently a vice chairman of New York’s Metropolitan Museum of Art.
From the The Columbia Encyclopedia:
*Sturm und Drang (sht
rm nt dräng) or Storm and Stress, movement in German literature that flourished from c.1770 to c.1784. It takes its name from a play by F. M. von Klinger, Wirrwarr; oder, Sturm und Drang (1776). The ideas of Rousseau were a major stimulus of the movement, but it evolved more immediately from the influence of Herder, Lessing, and others. With Sturm und Drang, German authors became cultural leaders of Europe, writing literature that was revolutionary in its stress on subjectivity and on the unease of man in contemporary society. The movement was distinguished also by the intensity with which it developed the theme of youthful genius in rebellion against accepted standards, by its enthusiasm for nature, and by its rejection of the rules of 18th-century neoclassical style. The great figure of the movement was Goethe, who wrote its first major drama, Götz von Berlichingen (1773), and its most sensational and representative novel, The Sorrows of Young Werther (1774). Other writers of importance were Klopstock, J. M. R. Lenz, and Friedrich Müller. The last major figure was Schiller, whose Die Räuber and other early plays were also a prelude to romanticism.
