Billionaire Boys Club Member Forum (BBCMF)

[mick]

MWD ,,, Group Wants Morgan Stanley Banking Spinoff
Thursday May 12, 6:09 pm ET
By Michael J. Martinez, AP Business Writer
Dissidents Propose Spinoff of Morgan Stanley's Investment Banking Business


NEW YORK (AP) -- A group of former Morgan Stanley executives and dissident shareholders wants to spin off the Wall Street firm's investment banking business -- long the pride of Morgan Stanley -- to "regain its stature and reputation," the group said Thursday.
ADVERTISEMENT


The proposal would essentially reverse Dean Witter & Co.'s 1997 takeover of Morgan Stanley, which has been a source of bitterness to longtime Morgan Stanley employees, who saw the aggressive retail brokerage as spoiling the company's culture. Morgan Stanley was acquired by Dean Witter, which took the Morgan Stanley name.

"The proposed spinoff is motivated by a belief that the board of Morgan Stanley faces an immediate crisis and that the firm has been badly served by its present management and leadership," the group of eight executives and shareholders said in a letter to other shareholders posted on the group's Web site.

Morgan Stanley spokesman Chad Peterson called the latest dissident plan a "publicity stunt," and said the company was not paying heed to the group's demands.

"We are moving forward. That's what our shareholders expect," Peterson said. "It's time for this self-serving group to grasp that simple reality and move on themselves."

The dissidents' plan calls for Morgan Stanley's investment banking division -- which handles initial public stock offerings, debt and equity underwriting and a fixed income and commodities business -- to be spun off from the rest of the company, leaving Dean Witter with its investment management business, retail brokerage, mutual funds and the Discover card business.

The dissidents' plan would effectively remove Chairman and Chief Executive Phil Purcell from leading the investment bank, leaving him in charge of the retail brokerage and Discover businesses. The group has been calling for Purcell's job for weeks, but Morgan Stanley's board gave Purcell a vote of confidence at an emergency meeting April 30 and refused to make any management changes.

Morgan Stanley is already planning a spinoff of the Discover card business into a separate company, leaving Morgan Stanley with its investment bank and retail brokerage divisions. The dissident group had earlier called the move ineffective.

The dissidents claimed their spinoff proposal was discussed with three non-executive members of Morgan Stanley's board of directors on April 22, but said their proposal has not received a response from the board.

However, Peterson said the board, at its emergency meeting, did not feel management changes or a spinoff other than the Discover plan was necessary.

"Those issues have already been reviewed and decided and another press release is not going to change that," Peterson said.

Analysts said the Morgan Stanley board was unlikely to cave to pressure in the short term.

"The board has made up its mind, so this kind of plan that the dissidents put out today, it's not really a credible step," said Fox-Pitt Kelton analyst David Trone, who follows Morgan Stanley. "A credible step is a proxy fight to replace the board. All these letters, these plans, this sniping back and forth, that isn't working. Until you have a proxy fight, you're grasping at straws."

The dissidents are still courting large institutional investors -- pension funds, mutual fund companies and the like -- to launch that proxy fight, in which the dissidents would put up their own slate of candidates to challenge the existing board at next spring's annual shareholder meeting. The group said institutional shareholders' input was included in the 21-page spinoff plan.

Members of the group were calling institutional investors Thursday to promote their plans, a source close to the group told The Associated Press on condition of anonymity.

In its statement, the group went on to criticize Purcell's strategy of a "fully integrated" Morgan Stanley, which would leverage strengths in the brokerage and institutional securities division. They also renewed their call for Purcell's departure.

"If Morgan Stanley's optimum strategy is to build a fully integrated securities business -- an outcome that Mr. Purcell has failed to accomplish in the eight years since the merger with Dean Witter Discover -- the strategy requires the immediate replacement of the current leadership team," the group said.

Shares of Morgan Stanley fell 45 cents to close at $49.40 on the New York Stock Exchange. They have traded between $46.54 and $60.51 per share over the past 52 weeks.

Purcell and Morgan Stanley co-presidents Zoe Cruz and Stephen Crawford addressed the problems at the firm -- including a middling financial performance and the departure of key institutional securities executives -- at an investor conference Tuesday. They said that they would work to retain their employees, but that their strategy of integration will go forward.

The dissident group has rallied around the defections in the investment banking division, where five top executives left six weeks ago. The group said it was "highly confident" those five employees would return to lead the spun-off investment bank.

The source close to the dissident group said there had not been substantive discussions with the former executives. Their inclusion in the group's plans for Morgan Stanley was based on their publicly stated loyalty to the firm and the fact that they had not yet been employed elsewhere, the source said.

None of the departed executives have publicly supported the dissident group. However, many Wall Street firms require top executives to sign non-disparagement and non-competition agreements, which prohibit employees from speaking out against the company for a set period of time.

A spokesman for highly regarded investment banker Joseph Perella, one of those departing executives, said he would have no comment on the group's proposal. Another former executive, Vikram Pandit, told business news channel CNBC he had not seen the group's letter to shareholders and did not want to comment.

Morgan Stanley: http://www.morganstanley.com

Dissident group: http://www.futureofms.com





Email Story
Set News Alert
Print Story