Morgan Stanley: Et tu, Mack?

January 14, 2009

ceasarIt’s not every day we have to dust off our Latin texts to cover Wall Street news, Morgan Stanley’s plan to acquire Citigroup’s Smith Barney brokerage over the next five years inspired eclectic Bernstein Research analyst Brad Hintz to invoke Julius Caesar: “Alea Iacta Est” “The Die is Cast!”

Hintz, in a client note, draws a parallel between the ambitious young conqueror, who uttered the above while leading his army across the Rubicon to reclaim Rome, with Morgan Stanley CEO John Mack, who with this latest move accelerates the investment bank’s expansion into retail financial services.CHINA FORUM

He argues the new strategy is not unlike the one advanced by former CEO Philip Purcell, whom Morgan’s board threw overboard in 2005 as the bank lost ground to Goldman Sachs. Purcell launched the Discover credit card and merged his middle-class Dean Witter brokerage with Morgan Stanley & Co in 1997. Over time, he frustrated the white shoe bankers with his aversion to taking investment and trading risks.

Mac, who replaced Purcell in 2005, pushed Morgan Stanley to find its old swagger. He spun off Discover, expanded its mortgage business and deployed more capital to finance leveraged buyouts. But the credit crunch and the collapse of Lehman last fall has forced Morgan, which suffered some major losses, to change gears once again.

“Morgan Stanley has reversed course and revived the old “Phil Purcell strategy” of pursuing retail brokerage and tightly constraining trading risk,” Hintz told his clients in a note.

The Morgan Stanley, once associated with the likes of investment banking stalwarts Dick Fisher, Bob Greenhill and Joe Perella, will become a Federal Reserve-regulated bank that relies on asset management fees, margin lending and commissions from individual investors. It will look a lot like Merrill Lynch or, dare we say, the Purcell-led Morgan Stanley Dean Witter.

(Picture credit:Bust of Julius Ceasar REUTERS/Alessia Pierdomenico, Morgan Stanley Chairman and CEO Purcell gestures during his speech at Fortune Global Forum in Beijing, May 18, 2005. REUTERS/Alfred Cheng Jin)

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