From the January 2008 issue of Research Magazine • Subscribe!

James Gorman Moves Up, as Zoe Cruz Bows Out

As of December 1, wealth-management head James Gorman, 49, and Morgan Stanley International chief Walid Chammah, 53, are co-presidents. They replace "retiring" co-president Zoe Cruz -- and Robert Scully, who's now part of a newly created office of the chairman. Gorman will stay put in New York and Chammah in London.

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Morgan Stanley's Latest Shuffle:o New Co-Presidents: Walid A. Chammah (London) and James P. Gorman (New York) o Institutional securities reports to Chammah; wealth and asset management to Gormano Former co-president Robert Scully joins new office of chairman focusing on key clients/global sovereign investors, while co-president Zoe Cruz "retires"o Michael Petrick to oversee trading business, be co-head of institutional securities sales and trading with Jerker Johanssono Neal Shear to chair commodities business

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One reason behind these and other shifts, observers say, is Morgan Stanley's announcement that it would take total write downs of $3.7 billion before taxes, or $2.5 billion after taxes, $2.36 per share, explains Richard Bove of Punk, Ziegel & Company. "Once again, investors find that this firm's models and trading disciplines failed under Zoe Cruz' watch."

In response to the rapidly changing market situation, Morgan Stanley Chairman and CEO John Mack explains, "We're putting in place a leadership team that is ideally suited to help Morgan Stanley realize the opportunities ahead, while continuing to navigate the current challenging conditions."

This strategy emerged some two months after Morgan Stanley assigned Gorman to become co-head of strategic planning, along with CFO Colm Kelleher. "Clearly the writing was on the wall," points out Chip Roame, head of Tiburon Strategic Advisors. Organizations in turmoil can run the risk of damaging their relationships with certain groups (like advisors) if they favor an executive with a different area of expertise and experience. By tapping two presidents, Morgan avoids such an issue, Roame shares.

"Gorman is very smart, thoughtful and strategic -- even outside his area of business, which means he's the right guy for this role," says Roame.

"James has led a dramatic turnaround of our wealth management group -- revitalizing its culture and transforming it into one of most dynamic competitors in the industry," says Mack. "He also has played a key role in better integrating our securities businesses, and most recently, has begun to play a key role in developing strategy for the entire firm.

"Walid, during his 14 years with Morgan Stanley, has held key leadership roles throughout the firm and played a critically important part in strengthening our culture ... Both Walid and James are widely respected within the firm, among our clients and across the industry," says Mack, "and I am confident they will be strong partners and decisive leaders in their new roles."

The challenges facing the duo and expectations regarding their performance are sizeable, some experts note. "This shake-up continues the management instability at this firm which has lasted for about four years now," says Bove. "This is clearly quite negative. The firm will never make headway toward developing consistent earnings growth if the players on the team keep shifting and the strategies being employed are constantly changing."

But, adds Bove, the appointments are telling: "Gorman could easily be thought of as Mr. Mack's replacement. Mr. Gorman has an exemplary track record. Also of interest is that Mr. Chammah will manage his part of the firm from London and that Mr. Scully's new role will be to seek more international relationships. Clearly Morgan is repositioning the firm for growth outside the United States."

Gorman, a native of Australia, joined Morgan Stanley in February 2006 as the president and COO of wealth management, and in October 2007 became co-head of strategic planning. He was head of private client at Merrill Lynch from 2001 to 2005.

Chammah, a native of Lebanon, joined Morgan Stanley in 1993 from Credit Suisse First Boston.

In the quarter ending August 31, 2007, Morgan Stanley's global wealth management group reported its sixth quarter of improving results. Its pre-tax margins were 17 percent, net income was $287 million, and revenues were $1.7 billion (up 23 percent from the third quarter of 2006). Total assets under management came in at $734 billion. Its 8,341 advisors had average assets under management of $88 million and annualized gross sales of $817,000.

As for Morgan's top post, "Mack should stay in the game for a few more years," adds Roame. "He's a vigorous guy and not looking to retire any time soon. And Morgan Stanley seems a bit 'un-done' right now, so there are some steps he'd like to take" before he steps out in a few years and passes the baton.

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Morgan Stanley Updates ClientServMorgan Stanley Global Wealth Management Group says it has instituted improvements to ClientServ, its online account access portal for individuals and small to mid-size businesses. In addition to up-to-the-minute account data, clients have access to more market information provided by Thomson Financial and an integrated online bill payment service via CheckFree.

"We're continuing to invest in technology that will benefit our clients and enhance their relationships with their Morgan Stanley financial advisors," says James Gorman, co-president.

Some new features include in-depth stock quotes, access to Dow and 26 world indices, as well as information about industry groups and sectors. A new and improved online bill pay feature was also launched. Morgan Stanley introduced a redesigned ClientServ site in late 2006.

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Janet Levaux is the managing editor of Research; reach her at jlevaux@researchmag.com.

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