Morgan Stanley CEO Mack to be replaced by Gorman

NEW YORK Thu Sep 10, 2009 7:55pm EDT

1 of 2. Morgan Stanley CEO John Mack in a file photo.

Credit: Reuters/Tamara Abdul Hadi

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NEW YORK (Reuters) - Morgan Stanley Chief Executive John Mack is stepping down and will be replaced by retail brokerage head James Gorman, signaling the storied bank is embracing stable businesses after losing big on risky ones.

Mack, 64, a former trader who rose to CEO after a coup toppled Philip Purcell, will remain chairman of Morgan Stanley, which posted a second-quarter loss of $1.26 billion even as other banks had stronger results.

Under Mack, Morgan Stanley was willing to bet more of the bank's own money, a strategy that yielded big rewards in years like 2006, but also helped push the investment bank to the brink of collapse in 2008.

The shift to Gorman, 51, who runs Morgan Stanley's brokerage and has been overseeing its expansion through a joint venture with Citigroup's Smith Barney unit, could be a sign of a wider shift in the industry, analysts said.

"All these large financial institutions are going to replace their head honchos with someone with a background in a business with a more consistent, predictable revenue stream -- commercial banking, retail brokerage, or asset management," said Bill Fitzpatrick, equity research analyst for financials at Optique Capital Management in Milwaukee.

Gorman will take over the CEO job -- and join the board of the iconic bank which has struggled to keep up with archrival Goldman Sachs -- effective January 1, 2010.

FIGHTING FOR SURVIVAL

The Australian born Gorman has long been seen as a front runner for the top job at Morgan Stanley, the bank founded 74 years ago by former executives from JPMorgan & Co.

"Gorman has really earned his stripes," said Anton Schutz, president of Mendon Capital Advisors in Rochester, New York, which owns Morgan Stanley shares. "He did a great job at Merrill, he's doing a good job at Morgan Stanley, and the timing for a change seems to be good, because we've made it through the worst of the crisis."

Mack had told the bank's board that he planned to step down from the CEO post when he turned 65 in November, the bank said in a statement on Thursday.

Morgan Stanley's shares have come roaring back this year after it fought for survival in the wake of the Lehman Brothers collapse, helped by the U.S. government and an investment from Japanese bank Mitsubishi UFJ that Mack took the lead in negotiating.

Still, the bank's shares, which are up nearly 80 percent so far this year, have fallen short of a 107 percent surge in Goldman Sachs Group Inc's stock.

Morgan Stanley earlier this year paid $2.75 billion to acquire a controlling stake in Citi's Smith Barney retail brokerage, a move that could provide a more stable source of revenue to offset some of the investment bank's more volatile businesses.

Prior to joining Morgan Stanley in 2006, Gorman worked at Merrill Lynch & Co. From 2001 to 2005, he led Merrill's global private client business.

STANDING OVATION

Walid Chammah, another Morgan Stanley co-president who had also for a time been a candidate for the top job, was named chairman of Morgan Stanley International. Chammah had expressed a desire to stay in London, the bank said.

Mack received a standing ovation on Morgan Stanley's trading floor when he returned in 2005, after a group of former senior executives began agitating for Purcell's ouster. Purcell was seen as excessively risk averse and too disengaged from Morgan Stanley's key banking and trading businesses.

But critics said Mack took the bank too far in the other direction.

More recently, some investors said the bank overreacted, retreating from risk after the worst of the crisis blew over and just as rivals like Goldman and JPMorgan Chase & Co seized trading opportunities.

"Mack made some missteps, but he did remove silos at Morgan Stanley and make it one company, and he hired Gorman, which was huge," Schutz said. "There were some missteps, but he didn't end up going the route of Bear or Lehman, either."

(Reporting by Christian Plumb and Dan Wilchins; Editing Gary Hill and Bernard Orr)

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