Johnny Mack, You Won't Be Coming Back

Morgan Stanley's board of directors told Johnny Mack he had better pack. Following a poor 2009 earnings (thus far) and policies which prevented its bond traders from taking advantage of market conditions Morgan Stanley's board has decided to take the firm in a new direction, almost 180 degrees.


Morgan Stanley's board named co-president and wealth management chief James Gorman CEO affective January 1st, 2010. Fellow co-president Walid Chammah will relinquish his title of co-president, but will retain his position of chairman of Morgan Stanley International in London. The board's the decision to go with a retail brokerage expert versus a bond guy (Mack) or an asset-backed pro (Chammah) is a major sea change.

This truly is a big shift as retail wealth management had been treated with some contempt since the "merger" with Dean Witter. It has been widely known on the street that legacy Morgan Stanley personnel had little tolerance for Dean Witter people. This had been of much concerned on the Street as Morgan Stanley's "joint venture (take over on the installment plane) with Smith Barney had been met with much skepticism due to Morgan Stanley's ill treatment of its retail investment advisers and retail staff.

Before wealth management types begin the celebration, there are a few issue with which to be concerned. First: A lack of focus on trading means a lack of revenue for the firm. It is true that trading of certain asset-backed structures did much damage to MS (and to many other firms), but it is traditional securities trading and underwriting which pays the bills more so than any other part if the investment banking business. Cut back on trading and resource and flexibility dwindle. So does product choices an pricing power for advisers and clients.

The challenges facing Mr. Gorman are daunting. He must revitalize Morgan Stanley's trading operation, improve the relationship between wealth management and the capital markets unit and integrate over approximately 13,000 Smith Barney brokers, most of whom are accustomed to service and expertise at levels currently unavailable at Morgan Stanley. He must do all of this while simultaneously keeping investors and regulators happy. Good Luck Jamie.