Union Presses Morgan Stanley on Analyst’s Report

A report by a Morgan Stanley market strategist that warned investors away from unionized companies has drawn the ire of the nation’s largest labor organization.

In the letter to Morgan Stanley Chief Executive Philip Purcell, AFL-CIO President John Sweeney complained about the report by strategist Steve Galbraith that cautioned the firm’s clients against investing in heavily unionized firms in the near term.

In a Nov. 11 report titled “Look for the Union Label,” Galbraith wrote: “In the face of a difficult economic outlook, investors do not want to own businesses with high fixed costs, pension funding issues, spiraling post-retirement health-care obligations and potential labor strife.”

Sweeney, whose organization represents more than 13 million workers, questioned Galbraith’s motives and said he was concerned that Morgan Stanley doesn’t believe in union principles such as employee health care and pension plans.

“The report is contradictory, has -- even its authors admit -- a weak empirical foundation and appears to have been written more to inflame its readers than to inform them,” Sweeney wrote in his letter Monday.

“In short, this research report appears to be an improperly motivated attack on all union members, their employers and their benefit funds,” he said.

Sweeney asked for the opportunity to discuss the report with Purcell. AFL-CIO spokeswoman Kathy Roeder said the labor organization is not seeking any form of retraction.

In a statement Thursday, Morgan Stanley said: “Recent responses to a research report for North American clients mischaracterizes as Morgan Stanley policy one of its research analyst’s opinion on the investment attractiveness of unionized companies.”

Sweeney questioned the timing of the report, noting the AFL-CIO refiled on Nov. 8 a shareholder proposal at Morgan Stanley that would prohibit analyst conflicts.

In another development Thursday, there were reports that Morgan Stanley is laying off about 2,200 employees, or nearly 4% of its work force. The investment bank is cutting costs amid the prolonged economic downturn, a person familiar with the situation said.

A spokeswoman at Morgan Stanley declined to comment.

The investment banking industry has suffered for a variety of reasons in the last year, including the lack of merger-and-acquisition activity, declines in their investment portfolios and the slow pace of the economic recovery.

Morgan Stanley’s shares rose $2.89 to $46.40 on the New York Stock Exchange on Thursday.