Two Top Morgan Stanley Bankers Resign - April, 2005
NEW YORK (Reuters) - Morgan Stanley's two top investment bankers resigned on Wednesday, increasing the pressure on Chief Executive Philip Purcell and raising questions about whether the securities firm can remain independent.
The resignations are the biggest blow yet in a battle raging between Purcell and a group of eight former Morgan Stanley executives seeking to oust him.
Joseph Perella, Morgan's investment banking chairman and company vice chairman and one of the best-known bankers on Wall Street, resigned after 12 years at the firm. Tarek "Terry" Abdel-Meguid, a long-time Perella deputy and the head of investment banking, also quit.
The firm quickly named new co-heads of its Investment Banking Division and said Perella and Meguid had agreed to stay on for an unspecified transition period.
"Morgan Stanley simply cannot be managed if this much turmoil exists within," Punk, Ziegel & Co. analyst Dick Bove said. "And if it cannot be effectively managed, I don't see how Purcell can stay at the top."
Morgan Stanley's board responded directly to the dissidents on Wednesday, criticizing their campaign and reaffirming its support for Purcell.
At least 10 traders and bankers have left the firm since Purcell shook up management in the securities business late last month. The departure of Perella is especially painful because of his stature on Wall Street and his recent support for Purcell.
The dissidents accuse the 61-year-old Purcell of mismanagement. Morgan shares have fallen by nearly a third over the past five years, a period in which the shares of Goldman Sachs Group Inc. (NYSE:GS - news) and Lehman Brothers Holdings Inc. (NYSE:LEH - news) have risen sharply.
Last month Purcell responded to challenges from the dissidents by shaking up management. Zoe Cruz, who was head of fixed income, and Stephen Crawford, the chief administrative officer, were named co-presidents and later joined board of directors. The firm also announced plans to spin off its Discover card business, a strategic reversal designed to appease investors who have pushed Purcell to shed the unit.
Morgan Stanley on Wednesday said European investment banking head Michael Uva and Cordell Spencer, deputy head of worldwide investment banking, would become co-heads of worldwide investment banking, succeeding Meguid.
Uva, 47, and Spencer, 42, are 20-year veterans of Morgan Stanley. Both will join the firm's management committee.
The Morgan Stanley board, in a public letter to the dissidents on Wednesday, said, "It is clear to us that your ill-considered, professionally-directed attacks on Morgan Stanley and our people are damaging the firm and our shareholders. We ask you to desist."
The dissidents, in a statement, said the letter showed the board was not looking out for shareholders' best interests and did not understand "the impact on the firm from the continuous loss of some of the firm's most talented and respected professionals."
Morgan's retail brokerage, money management and Discover card businesses have generated disappointing results. These businesses comprised Dean Witter, Discover & Co., which was led by Purcell before the 1997 merger with the old Morgan Stanley.
The firm has tried to play down the importance of the executives departures, noting that so far this year it is the No. 1 adviser globally in merger and acquisitions and in initial public offerings.
Perella has been a leading merger adviser for more than 20 years and has worked on some of the biggest deals ever, including the $182 billion merger of America Online and Time Warner Inc. (NYSE:TWX - news) in 2001 and the $31 billion buyout of RJR Nabisco in 1989.
He made his name building the M&A practice at Credit Suisse First Boston with Bruce Wasserstein in the 1980s. He joined Morgan Stanley in 1993 as a senior banker and member of the management committee, and lately led efforts to strengthen relationships with some of the firm's most important clients.
Meguid, 49, joined Morgan Stanley in 1978 and in 1990 founded a private equity business. Since the mid-1990s, he has served as deputy to Perella, who became head of corporate finance in 1995 and head of investment banking in 1997.
Punk, Ziegel & Co.'s Bove, who last year forecast 2005 would be pivotal for the firm, says the dissidents have not provided a viable alternative to Purcell, and this could offer an opening for a "white knight" -- such as London-based banking giant HSBC Holdings (0005.HK) (HSBA.L) -- to acquire Morgan Stanley.
Morgan Stanley shares were down $1.68, or more than 3 percent, at $52.80 in afternoon trade on the New York Stock Exchange.