Morgan’s Public Fight Is a Rarity
The best show in New York these days is on Broadway, but it isn’t showing in any theater.
The drama is instead at the headquarters of venerable investment bank Morgan Stanley, where the firm’s chief executive and a group of former top managers are clashing over control of the company.
Concerned about Morgan’s depressed stock price, eight former executives took the rare step this week of publicly calling for the ouster of CEO Philip J. Purcell.
Their move came after Purcell tried to tighten his grip on power by promoting two executives loyal to him. That sparked an exodus of other managers from Morgan’s theater-district headquarters and stirred speculation that one of Wall Street’s most prestigious firms might be forced onto the auction block.
Though executive-suite power plays are part of the fabric of Wall Street, they normally don’t spill into the open so fiercely in an industry that places great emphasis on decorum.
“It’s highly unusual that this comes out of the boardroom,” said Anton Schutz, manager of the Burnham Financial Services fund. “Now we’ve got a street fight.”
The dispute pits two factions that have tangled with each other since 1997, when white-shoe Morgan Stanley Group Inc. was acquired by middlebrow brokerage Dean Witter, Discover & Co.
Although Morgan bankers are richly paid confidantes of American CEOs, Dean Witter brokers once peddled stocks in Sears, Roebuck & Co. department stores.
Critics believe that the stock has been weighed down by the underperformance of former Dean Witter units, such as the Discover credit card.
One high-profile shareholder, Scott Sipprelle, a former Morgan executive who runs a hedge fund, has lobbied for Morgan to dump its brokerage and credit card businesses, as well as the unit that oversees mutual funds and investments.
However, it’s doubtful that Purcell, who was Dean Witter’s chief executive, would shed the core of his former company, experts say.
The former Morgan executives sent two letters excoriating Purcell to the company’s board last month. The most recent missive, which the executives published as a full-page ad in the Wall Street Journal on Thursday, charged that Morgan had fallen into “the worst kind of crisis” on Purcell’s watch.
Purcell tried to steady his position Monday by naming two of his lieutenants as co-presidents.
Stephen Crawford and Zoe Cruz hopscotched over several higher-ranking executives, including Stephan F. Newhouse, who had been president. That prompted two top managers, Vikram S. Pandit and John P. Havens, to resign the next day. Pandit had run the highly profitable institutional securities business, while Havens headed the institutional equity unit.
A third executive also left, and Newhouse departed Friday.
The big question making the rounds on Wall Street is whether the man at the top, Purcell, will survive.
Corporate directors, worried about their own liability, are moving far quicker than in the past to exile controversial CEOs. But Morgan’s board is filled with Purcell supporters, observers note, an observation punctuated by a Morgan spokesman.
“The board has heard, considered and rejected the opinions from Mr. Sipprelle and from the group of eight advisory directors,” the spokesman said. “They have unanimously affirmed their support for management and the strategy for taking the company forward.”
Purcell has something else on his side. Like his counterpart at Walt Disney Co., Purcell is a seasoned infighter who has batted back past threats to his leadership.
“He’s the Michael Eisner of Wall Street,” said former Morgan analyst Andy Kessler, who writes books about Wall Street life.
Given that culture clashes had undermined past Wall Street marriages, the blending of Morgan and Dean Witter always made for an unlikely fit.
Tension developed almost immediately, partly because the Dean Witter team outmaneuvered its Morgan colleagues for control of the firm. Former Morgan President John J. Mack was squeezed out in 2001.
Part of the rationale for the combination of the two companies was the growing presence of individual investors in the securities markets.
Dean Witter’s steady business of catering to small investors would balance Morgan’s volatile investment banking and trading units, the logic went. The blending of Dean Witter stockbrokers with Morgan bankers gave the company a ready outlet to sell its many stock and bond offerings.
But while Morgan’s top-notch investment banking unit has been thriving, former Dean Witter businesses, primarily the credit card and brokerage units, have disappointed investors.
Critics say a mid-tier credit card operation, although a big cash flow generator, has nothing in common with investment banking.
Although individuals remain a force in the market, their fervor was sapped by the 2000 bear market. Morgan brokers generate less revenue on average than counterparts at Merrill Lynch & Co. and Citigroup Inc., according to a recent analyst report.
“The firm, from all indications from the outside, has been horrifically managed,” said Ken Morris, a former Morgan trader who now is a novelist in Del Mar, Calif.
Yet some observers don’t have much sympathy for the eight former Morgan executives, saying the investment bank did the merger willingly.
Said Wall Street author Kessler, “I think they look kind of silly airing their concerns in major newspapers.”
Morgan’s shares closed Friday at $56.87, down 38 cents, on the New York Stock Exchange.
