A group of former Morgan Stanley executives and dissident shareholders wants the Wall Street firm to spin off its investment banking business — long the pride of Morgan Stanley — to "regain its stature and reputation," the group said Thursday.
The proposal would essentially reverse Dean Witter & Co.'s 1997 takeover of Morgan Stanley, which has long been a source of bitterness to longtime Morgan Stanley employees who saw the aggressive retail brokerage as spoiling the company's culture.
"The proposed spin-off 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 statement.
The group claimed that their spin-off proposal was discussed with three non-executive members of Morgan Stanley's board of directors on April 22, but that the proposal has not received a response from the board. The group also said it discussed the plan with institutional shareholders — large shareholders like pension funds or mutual funds — and added their input to their 21-page plan, presented on the group's Web site.
The group blasted Chief Executive Phil Purcell's strategy of a "fully integrated" Morgan Stanley, which would leverage strengths in the brokerage, institutional securities division and Discover Financial Services, which includes the Discover credit card. 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.
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 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 institutional banking division, where five top executives left six weeks ago. The group claimed those five employees would return to lead the spun-off investment bank.