News Column

Morgan Stanley Eases Out a Top Banker

Nov. 7, 2012
MOrgan Stanley

The bank announced a shake-up in its senior management in an attempt to increase the profitability of that business. Paul J. Taubman, who has been with the bank for 30 years, will leave.

Since the financial crisis, Morgan Stanley has been struggling to squeeze more money out of its sales and trading business, which has suffered as the bank has pulled back from taking risk.

On Monday, the bank unexpectedly announced a shake-up in its senior management in an attempt to increase the profitability of that business. One of Wall Street's most prominent deal makers, Paul J. Taubman, will leave the company, while another executive, Colm Kelleher, will become the sole head of sales and trading.

Mr. Kelleher's power within the bank will be rivaled only by that of Greg Fleming, who oversees the wealth and asset management units, and James Gorman, the chief executive.

Mr. Kelleher and Mr. Taubman have been running the unit together for three years. But in recent weeks, Mr. Gorman told Mr. Taubman that he wanted just one executive in charge of the business, according to a person briefed on the matter who spoke anonymously because he was not cleared to speak publicly.

That one executive was Mr. Kelleher, 55, leaving Mr. Taubman, 51, a 30-year veteran of the company, the choice of staying in an arguably diminished role or leaving.

Mr. Taubman had been elevated from the head of investment banking to co-head of the securities division in January 2010. That made him a partner of Mr. Kelleher, a former accountant who had won praise for helping steer Morgan Stanley through the financial crisis.

The co-head structure had been intended to pair executives with complementary skills and experiences. Instead, it led to prolonged clashes over the shared leadership of Morgan Stanley's most prominent business. The two differed not only in background but also in style: Mr. Taubman was the reserved intellectual and Mr. Kelleher the brash trading veteran fond of Cuban cigars and sarcastic humor.

Such was the rancor between them that other executives sometimes remarked upon the chilliness that descended on meetings involving both men.

Behind Mr. Gorman's decision was a desire to align the sales and trading operations better with the investment banking arm. The goal is to persuade clients who rely on Morgan Stanley for advice on mergers and stock sales to use it for trading services as well.

Mr. Kelleher will assume full responsibility for Morgan Stanley's investment banking and trading operations. Repairing the unit, which trades in bonds, currencies and commodities, will be of primary importance: It had a strong first quarter this year but slumped in the second.

Shareholders will want the unit's profits to become more stable, a task made more difficult by new regulations that require holding more capital, damping crucial measures of profitability.

"They need to get fixed income right to earn acceptable returns for the stock to work," said Glenn Schorr, an analyst with Nomura. "That fits squarely in Colm's world."

While Mr. Taubman was offered a number of different roles -- and the option of not reporting to his former rival -- he declined.

Mr. Kelleher, who was the bank's chief financial officer during the financial crisis, is now set to be one of two potential successors to Mr. Gorman, along with Mr. Fleming. (There is no indication that Mr. Gorman, who is 54, plans to leave anytime soon, however.)

Mr. Taubman has been one of the most successful merger bankers, having helped broker transactions like Comcast's takeover of NBC Universal and Wyeth's $66.8 billion sale to Pfizer. But perhaps his most important deal was working to secure an emergency lifeline from the Mitsubishi UFJ Financial Group of Japan that kept Morgan Stanley afloat during the financial crisis.

Under Mr. Taubman, Morgan Stanley has consistently come in first or second in Thomson Reuters's listings of top merger advisers, competing with Goldman Sachs for the top spot.

"Paul is an outstanding banker and business leader who has made exceptional contributions, both to Morgan Stanley and to our investment banking franchise during his highly distinguished 30- year career here," Mr. Gorman said in an internal memorandum.

"On a personal level," he added, "Paul has been a valued strategic adviser to me on many critical issues we have faced these past few years."

Mr. Taubman, who has spent his entire career at the company, holds another distinction: As of January, he was Morgan Stanley's second-biggest individual shareholder, with 1.28 million shares, according to Bloomberg data. That puts him ahead of Mr. Gorman, who had 1.17 million shares as of April. For years, Mr. Taubman made it a point of pride that he had not sold a share, even when Morgan Stanley's stock traded at multiples above where it now stands.

Yet while Mr. Taubman did a good job of keeping Morgan Stanley in the top tier of investment banking, Mr. Schorr said trading was likely to remain a major focus of the company's leadership for some time.

Mr. Gorman agreed. He wrote of Mr. Kelleher in an internal memo:

"His unique skill set and experience in global capital markets, as well as sales and trading, make him ideally suited to lead the institutional securities businesses."

Mr. Taubman's departure has prompted other changes in the securities division. Mark Eichorn and Franck Petitgas were named the global co-heads of investment banking, reporting to Mr. Kelleher. Jeff Holzschuh was named chairman of institutional securities to focus on maintaining crucial client relationships.

Investment bankers may benefit from one aspect of the timing of Mr. Taubman's departure. His staying until the end of the year will give him a voice in setting bankers' bonuses, which will be paid early in 2013.

Source: (C) 2012 International Herald Tribune. via ProQuest Information and Learning Company; All Rights Reserved

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