Morgan Stanley's Gorman Shakes Up Management

Friday, 14 Jan 2011 07:09 AM

 

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Morgan Stanley announced a number of executive changes across its retail brokerage and fixed-income trading divisions, as Chief Executive James Gorman overhauls the bank's management ranks a year into his tenure.

The moves, which follow executive changes announced last week, come just before the firm releases its fourth quarter financial results.

Greg Fleming, 47, a former Merrill Lynch president who already led Morgan Stanley's asset management business, will also become president of global wealth management. Gorman had previously worked with Fleming at Merrill Lynch, where he had run the giant brokerage division

Fleming succeeds Charles Johnston, a former Citigroup executive who served as president of Morgan Stanley Smith Barney since Citigroup Inc and Morgan Stanley formed the brokerage joint venture in June 2009.

Some analysts said Johnston's presence will be missed.

"Johnston is famous among Smith Barney brokers for his willingness to listen to suggestions and hear out complaints. He kept his finger on the pulse of the organization," said Brad Hintz, a veteran analyst at Sanford C. Bernstein and a former Morgan Stanley treasurer.

His hands-on approach and common touch contrast with what Hintz called the "distant senior management of Morgan Stanley and their teams of consultants."

Johnston, 57, will leave the firm at the end of this year to "spend more time on family and charitable pursuits," according to an internal memo from Gorman.

An industry veteran who began his career as a Merrill Lynch financial adviser in 1978 and then rose up the ranks at Smith Barney, Johnston will act as vice chairman of the venture.

Other analysts said the retirement of Johnson, who had been the most senior Smith Barney executive at the combined firm, further consolidates Gorman's control of the business. Citi, which owns 49 percent of the venture, is expected to sell the remainder of its shares to Morgan Stanley by 2014.

"The Morgan Stanley culture clearly has the upper hand in the brokerage joint venture," said Alois Pirker, research director at Aite Group. "It seems Gorman is putting his own team in place now."

Gorman, who initially joined Morgan in 2005 to run its wealth management business, is chairman of brokerage business. The Australia native and former McKinsey consultant had been recruited by then CEO John Mack.

The management shift also shows the ongoing comeback of Fleming, 47, who had left Merrill and briefly went into academia after the investment bank was acquired by Bank of America during the financial crisis.

He was recruited by Gorman in 2009 to revive Morgan Stanley's laggard asset management division.

Now he takes on the additional challenge of ensuring that Morgan Stanley Smith Barney, the world's largest brokerage with more than 18,100 advisers, realizes its full potential. Morgan Stanley earlier this year projected a strong rebound in asset growth and profitability, but was forced to back off those projections as advisers and customers continued to flee.

"The integration of Morgan Stanley and Smith Barney is behind schedule; margins remain anemic," Hintz said. On the other hand, if Fleming accelerates the integration, the broker turnover rate will rise and Morgan will lose both client assets and brokers to its competitors."

DIMAIO DEPARTS

There was also dramatic change at Morgan Stanley's fixed income business, which has languished behind that of archrival Goldman Sachs Group Inc since the financial crisis.

Initially Morgan Stanley, which came close to its own demise after Lehman collapsed, vowed to slash risk-taking and sail close to shore. Massive trading miscues in mortgages and credit had generated the bulk of the firm's losses.

As Goldman and J.P. Morgan Chase raked in windfall trading gains when markets recovered in 2009, Morgan Stanley decided to rebuild its fixed-income business. A key hire among the hundreds of new traders was Jack DiMaio, who joined Morgan Stanley from Credit Suisse less than a year ago.

He is succeeded by chief risk officer Kenneth deRegt, who now must help the firm achieve its goal of increasing market share in fixed income, currencies and credit trading.

DeRegt, 55, will be replaced as chief risk officer in the interim by Keishi Hotsuki, head of the market risk department.

DiMaio, previously head of fixed income group at Credit Suisse Group is leaving to return to "the buy side" of Wall Street, Gorman said in the memo, without elaborating.

DiMaio, 43, co-founded hedge fund DiMaio Ahmad Capital LLC, which was spun out of Credit Suisse in 2005.

This is the latest in a series of executive changes announced at Morgan Stanley over the past 10 days. Last Tuesday, the firm announced technology chief Jim Rosenthal would become chief operating officer.

On Thursday the firm said two senior executives, including former chief financial officer Colm Kelleher, would also take international leadership roles.

© 2014 Thomson/Reuters. All rights reserved.

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