Extreme Makeover at Morgan Stanley

Extreme Makeover at Morgan Stanley

Morgan Stanley, one of the grandest names on Wall Street, transformed itself into an old-fashioned bank holding company in a desperate bid to survive the financial crisis.

By LOUISE STORY

Two months ago, Morgan Stanley, one of the grandest names on Wall Street, transformed itself into an old-fashioned bank holding company in a desperate bid to survive the financial crisis.

But now this new Morgan Stanley faces an even bigger challenge: figuring out where to go from here. Goldman Sachs, its perennial rival, is in the midst of a similar metamorphosis, and both firms face a somewhat uncertain future.

Drawing up the roadmap at Morgan Stanley are Walid A. Chammah and James P. Gorman, who are not only co-presidents but also potential rivals to succeed John J. Mack as chief executive.

Mr. Chammah is trying to re-engineer Morgan Stanley’s vaunted investment banking operation for leaner times, which means cutting jobs — lots of them. Since July the firm has announced plans to eliminate 16 percent of its work force.

Mr. Gorman, meantime, is urgently hunting for a bank to buy to build a base of customer deposits that would provide a crucial cushion — and new types of earnings. So far, he has not sealed any deals.

Morgan Stanley has had some good news in the last few days. Its share price rose three days in a row, along with other financial stocks, and Fitch Ratings upgraded its outlook for the bank’s credit rating to stable from negative. The company plans to sell more than $2 billion in new debt that will be backed by a federal program.

Still, neither the co-presidents nor Mr. Mack, 64, have fully persuaded investors that Morgan Stanley can recapture its past glory — or past profits. Morgan’s stock is worth only a fraction of what it was a year ago and the company’s next quarterly results, due in mid-December, do not look promising.more