Morgan Stanley

Last edited by lenazun on December 15, 2009 - 4:10pm

Company Snapshot:

Founded in 1935, Morgan Stanley is a global financial services firm headquartered in New York. As one of the top investment banks of it's kind, Morgan has offices in 35 countries with 600 global offices. Morgan's investment focus broke down to three divisions - institutional securities, global wealth management, and asset management.

One of the last remaining titans of Wall Street, the firm has seen increased pressure due to the current credit crisis. In 2007, Morgan twice wrote down the value of its subprime holdings totaling over $9 billion.

As of late September 2008, Morgan Stanley (along with Goldman Sachs) with assistance from the Federal Reserve, moved away from investment banking into a more traditional commercial banking role thus, asking for tighter government regulation. In October, with confidence still eroding on Wall Street, Morgan's stock value dropped 25 percent. On November 12, 2008 Morgan Stanley announced a 10 percent cut in the staff of the institutional securities division.

Number of employees worldwide:

48,256

Chief executive officer:

John J. Mack

Website:

morganstanley.com

Global Fortune 500 rank:

108

Tel:

212-761-4000

Fax:

212-761-0086

Net Income:

$3.2 billion

Total revenue:

$85 billion

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Corporate accountability

Accountability overview:

SEC Cases against the Company and/or its Employees:

On July 3, 2008, a judge ruled against former MS& Co. employee Jennifer Xujia Wang and her husband, Ruben Chen a/k/a Ruopian Chen (a former employee of ING Investment Management Services, LLC) in an insider trading case filed by the SEC on May 10, 2007. After pleading guilty to conspiracy to commit securities fraud and insider trading Chen and Wang were each sentenced the previous December to 18 months in prison, to be served consecutively. Chen surrendered on March 3, 2008. The SEC alleged that Chen and Wang used online brokerage accounts in Wang's mother's name, Zhiling Feng, to purchase securities of companies on the verge of announcing they would be acquired. The couple were also ordered to disgorge $784,829 and pay a $50,000 penalty. No charges were brought against the firm. (Also see 7/24/2008 administrative proceedings order.)

On December 18, 2007, the SEC filed civil fraud charges against two former Morgan Stanley DW, Inc. (MSDW) financial advisers, Darryl A. Goldstein and Christopher O'Donnell, "for allegedly engaging in a fraudulent market timing scheme. "Market timing" refers to the practice of short term buying, selling, and exchanging of mutual fund shares in order to exploit inefficiencies in mutual fund pricing." The firm consented to pay $17 million to settle a related administrative proceeding. In addition, former MSDW employee (3/200 to 11/2003) Mark H. Plotkin settled allegations that he aided and abetted trading practices designed to circumvent mutual funds' restrictions on market timing. Plotkin agreed to pay $90,000, and was barred from the industry for one year.

On October 10, 2007, Morgan Stanley settled and administrative complaint against the firm for failing "to provide to its customers accurate and complete written trade confirmations for certain fixed income securities." The firm agreed to hire a consultant and adopt his/her recommendations for correcting the problem, and pay a $ 7.5 million penalty.

On September 20, 2007, the Securities and Exchange Commission charged 10 individuals, including former and current Morgan Stanley "stock loan" traders, with engaging in fraudulent schemes involving improper finder fees and illegal kickbacks in the "stock loan" industry. In its complaint, the SEC alleged that over a ten year period the defendants conspired to skim profits on stock loan transactions and pocketed over $4 million from their unlawful schemes.

On September 11, 2007 former Morgan Stanley securities representative (1996-2002) Joseph Miller was convicted of securities fraud and wire fraud. (United States v. Joseph Miller, Crim. Information No. 07-CR-688). The SEC barred from the industry on May 9, 2008.

On May 9, 2007 Morgan Stanley settled SEC charges that it failed to properly executive certain Over-the-Counter (OTC) retail securities orders between 10/24/2001 and 12/8/2004. The firm agreed to hire a consultant and adopt his/her recommendations for correcting the problem, and disgorge $6,457,200 (including interest) and pay a $1.5 million civil penalty.

On March 1, 2007 the SEC announces insider trading charges against "fourteen defendants in connection with two related insider trading schemes in which Wall Street professionals serially traded on material, nonpublic information tipped, in exchange for cash kickbacks, by insiders at UBS Securities LLC and Morgan Stanley & Co., Inc." The complaint alleges that "several securities industry professionals and a hedge fund made dozens of illegal trades and hundreds of thousands of dollars in illicit profits using inside information misappropriated by Morgan Stanley compliance department attorney Randi Collatta to trade ahead of corporate acquisition announcements (the "Morgan Stanley Scheme")." Related charges were settled with Collatta and six other members of the "insider trading ring" on September 18, 2008.

On September 28, 2006 former Morgan Stanley broker Maurice Servetnick (1994-2004) settled charges associated with his handling of NewAlliance Bancshares, Inc.'s initial public offering. Servetnick is barred from the industry for one year.

On May 10, 2006 Morgan Stanley agreed to settle a civil complaint filed by the SEC for failing to produce (between 12/2000 to 7/2005) tens of thousands of emails sought by Commission subpoenas and other requests. The firm agreed to pay a $15 million civil penalty. The allegations related to SEC investigations into the firm's allocation of IPO shares and conflicts of interest between the firm's research and investment banking practices. The firm withheld backup tapes while misrepresenting the status and completeness of what did produce and over-wrote backup tapes after the subpoenas were served. According to the complaint, the SEC received an anonymous tip alleging that Morgan Stanley had destroyed relevant e-mails. (For details see the SEC's complaint)

On January 25, 2005 Morgan Stanley settles with the SEC for "unlawful IPO practices" (e.g. inducing recipients of IPO allocations to place purchase orders for additional shares in the aftermarket) between 1999 and 2000, and agrees to pay a $40 million civilian penalty. (See the original complaint).

On September 5, 2005, former Morgan Stanley employee Carlos H. Soto-Cruz was sentenced to twelve years in prison and ordered to pay $25 million restitution for defrauding customers interested in investing in low risk mortgage-backed securities issued by the Government National Mortgage Association (commonly-called "Ginnie Maes"). Soto invested the customers' money instead in companies that he controlled, while using some of the money to engage in speculative and risky trading. On May 17, 2006 the SEC announced a Final Judgment by the US District Court in Puerto Rico, under which Soto agreed to forfeit $51 million without paying disgorgement or civil penalties, as provided in his Plea and Forfeiture Agreement in a related criminal case (United States v. Soto, Criminal Case No. 04-127 (CCC), United States Court for the District of Puerto Rico.)

On November 17, 2003 the SEC censures Morgan Stanley DW and fines the company $50 million, including a $25 million penalty and $25 million disgorgement, as a result of the firm's failure to disclose certain mutual fund conflicts of interest and disclosure failures.

On November 4, 2003, the SEC orders Morgan Stanley to cease and desist certain violations of financial reporting, recordkeeping, and internal controls provisions of the federal securities laws in relation to Ansett Worldwide Aviation Services, an aircraft-leasing group that the firm purchased, which leases new and old commercial jet aircraft to airlines around the world. The SEC questioned the firm's overvaluation of aircraft and high-yield bonds.

On April 28, 2003, Morgan Stanley agrees to settle charges filed by the SEC against the firm for engaging "in acts and practices that created conflicts of interest for its research analysts with respect to investment banking activities and considerations....Some conflicts resulted from the fact that Morgan Stanley compensated its research analysts, in part, based on the degree to which they helped generate investment banking business for Morgan Stanley." The firm agreed to pay $25 million as disgorgement and an additional $25 million in penalties, while promising to pay $75 million over five years to fund independent research. (For additional details see the SEC's complaint). The charges are incorporated into the "Global Research Analyst Settlement" approved by a Federal Court on October 31, 2003. (See the http://www.sec.gov/litigation/litreleases/judge18117.pdf final judgment against Morgan Stanley.) The court approved an investor education plan sponsored by the NASD Investor Education Foundation on September 5, 2005.

On December 3, 2002, Morgan Stanley and four other banks settled SEC charges that it had failed to preserve electronic mail communications (including inter-office memoranda and communications) for the required length of time between 1999 and 2000. Each bank agreed to pay $550,000 to NASD, the US Treasury and the NYSE -- for a total penalty per bank of $1,650,000.

On October 1, 2002, the SEC settles charges with Morgan Stanley subsidiary Dean Witter Reynolds, Inc., n/k/a Morgan Stanley DW, Inc. ("Dean Witter"), as well as Florida employee Mark Rodgers and his supervisor Paul Grande -- after Rodgers allegedly traded on customer accounts without the authority to do so. The firm is ordered to pay the SEC $500,000; Rodgers is barred from the business and ordered to disgorge $631,885.

On March 7, 2002 the SEC sued MS analyst Ronald K. Mahabir for insider trading, alleging that he tipped John James Panagotacos and James John Panagotacos, with material nonpublic information about three separate merger transactions. The SEC later barred Mahabir from the securities industry and ordered him to pay a $264,961.50 civil penalty. On the same day (3/7/2002) the SEC charged that former MS Co. analyst Andrew W. Sachs engaged in insider trading prior to the August 29, 1997 public announcement that Barnett Banks, Inc. Sachs consented to pay a total of $46,008.96, representing disgorgement of $19,197, prejudgment interest in the amount of $7,614.96, and a civil penalty of $19,197.

On October 10, 2001 the SEC announced that a Final Judgment had been reached against former Menlo Park-based Morgan Stanley employee Brett S. Henderson and another defendant for trading on material, non-public information regarding MSDW clients. The two were each ordered to disgorge $54,109.45 (waived because of Henderson's demonstrated inability to pay). Henderson also plead guilty to related criminal charges, and was sentenced to home detention.

On November 3, 2000 a judge in the U.S. District Court for the Eastern District of Michigan entered a permanent injunction by consent against former Dean Witter broker Dean C. Turner of Troy, MI, for his fraudulent sales of promissory notes. The year before, Turner was convicted of two counts of mail fraud. He was later sentenced to 18 months imprisonment and two years of supervised release after his prison term. Turner began serving his term in April 2000.

On August 28, 2000 Morgan Stanley subsidiary Dean Witter settled SEC charges that it engaged in Mutual fund switching (defined as "liquidat[ing] holdings of investment company shares and us[ing] the proceeds to purchase shares of various other investment companies," "Mutual fund switching violates the antifraud provisions of the federal securities laws when registered representatives, in order to increase their compensation, induce investors to incur the costs associated with redeeming shares of one mutual fund and purchasing the shares of another fund and the benefit to the customer does not justify those costs.") The violations took place at the firm's Atlanta, GA office between 1994 and 1996. The firm agrees to remit a total of $276,702 to certain customers and pay a $200,000 penalty and retain an independent consultant to review the firm's procedures.

On April 6, 2000 Morgan Stanley settled charges filed by the SEC in association with the firm's sale of "U.S. Treasury securities to municipal bond issuers at excessive, undisclosed markups in connection with certain advance refunding transactions." The firm agrees to pay $2,453,219.92 to the US Treasury. The transactions are known as "defeasance escrow transactions."

On March 8, 1999 the SEC barred Henry L. Auwinger manager of Morgan Stanley subsidiary Dean Witter Reynolds, Inc.'s Hayward branch (11/1990 to 9/1994) from the industry for three months (and restricted from any supervisory role for an additional nine months thereafter), and ordered him to pay a $10,000 penalty to settle charges related to his failure to oversee the activities of Michael J. Oberholzer, who engaged in account churning to generate enormous commissions from the accounts of four elderly women.

Role in Parmalat Scandal Enrico Bondi, Italy's government-appointed administrator responsible for restructuring Parmalat filed suit against Morgan Stanley and 44 other banks for their role in Parmalat's accounting scandal. Convicted Parmalat founder Calisto Tanzi blames the banks for his company's problems. (Desmond O'Grady, "Banks are to blame, says Italy's Mr Milk," Int. Herald Trib., 1/22/2005). Morgan Stanley and other banks pushed Parmalat bonds - playing an instrumental role in transforming the company from a modest regional dairy business into a big food empire. (Patrick Hosking, New Statesman, January 12, 2004)

Pioneer of Hostile Takeovers

In 1974 Morgan Stanley broke ranks to assist International Nickel's hostile takeover bid for ESB, a battery company. Melvin Eisenberg, a leading economic historian has suggested that "[o]nce Morgan Stanley flipped, the old, inefficient social norm crumbled.... Once Morgan Stanley sanctioned hostile takeovers, competitors jumped in." (Melvin A. Eisenberg, Corporate Law and Social Norms, 99 COLUM. L. REV. 1253, 1288 (1999))

Fines

On September 27, 2007, the Financial Industry Regulatory Authority (FINRA) announced a settlement with Morgan Stanley & Co. to resolve charges that the firm's former affiliate, Morgan Stanley DW, Inc. (MSDW), failed on numerous occasions to provide emails to claimants in arbitration proceedings as well as to regulators - while representing that the destruction of the firm's email servers in the Sept. 11, 2001 terrorist attacks on New York's World Trade Center resulted in the loss of all pre-9/11 email. In fact, the firm had millions of pre-9/11 emails that had been restored to the firm's active email system using back-up tapes that had been stored in another location. The settlement provided for distribution of $9.5 million to two groups of customers who had arbitration claims against the firm. In addition, FINRA also imposed a $3 million fine on the firm for its failure to provide pre-9/11 emails and updates to a supervisory manual.

On August 2, 2007 FINRA announced that it fined Morgan Stanley DW Inc. (now known as Morgan Stanley & Co. Incorporated) $1.5 million and ordered the firm to pay more than $4.6 million in restitution for rule violations relating to the sale of corporate bonds to retail customers at excessive prices. The firm was cited for charging excessive mark-ups in more than 2,800 transactions and for having an inadequate supervisory system for monitoring the pricing of corporate fixed income securities sold to customers.

Tax issues:

Helping Hedge Funds Dodge Taxes

In September 2008, Senator Carl Levin and the Senate Permanent Subcommittee on Investigations released a report based on internal bank memos explaining how Morgan Stanley and other Wall Street investment banks have marketed complex schemes that allow offshore hedge funds to illegally avoid paying billions of dollars in dividend taxes.

From 2000 through 2007, Morgan Stanley used sham stock loans and other schemes to disguise dividend payments, thereby helping its clients to avoid over $300 million in dividend taxes. Bogus stock loans were also handled through Morgan Stanley Cayman Islands subsidiary Cayco, which paid $1.1 billion in disguised dividends to investors during the same period. (See Lynnley Browning, "Some Banks Are Accused Of Aiding A Tax Dodge," NY Times, 9/11/2008) Most hedge funds are registered in offshore tax havens to avoid taxes and circumvent other regulatory restrictions.

Labor:

"Glass Ceiling"/"Maternal Wall" Discrimination Case

In June 2000 the Equal Opportunity Employment Commission (EEOC) ruled that Morgan Stanley had discriminated against Allison Schieffelin, a high-level female broker employed in the firm's institutional equity division. Schieffelin alleged that she had been subject to discrimination and harassment, and that less-qualified male traders were promoted to managing director while she remained a principal. Months later, Morgan Stanley fired Schieffelin, claiming she was terminated for insubordination and inappropriate behavior. The EEOC concluded that she was fired in retaliation for her complaint and filed suit (Civil Action 01-8421) in September 2001.

On July 12, 2004 Morgan Stanley and the EEOC announced a settlement that would encompass Schieffelin and other women eligible for officer promotion in the firm's Institutional Equity Division. The firm agreed to spend $2 million on diversity programs designed to enhance the compensation and promotional opportunities for female employees. 67 female employees of the IED with claims divided a $40 million fund established under the consent order, with Schieffelin receiving $12 million as the lead plaintiff. The order also required Morgan to establish an internal ombudperson and an outside monitor; implement management training on the federal anti-discrimination laws; perform promotion and compensation analyses; maintain a complaint data base; and implement programs to address the promotion and retention of women.

EEOC prosecutor Elizabeth Grossman later said "EEOC v. Morgan Stanley has been called a “glass ceiling” case by some; it could also be called a “maternal wall” case" since "women who became pregnant and had children were passed up for promotion or otherwise treated less favorably than their colleagues."

In April 1998, Christian Curry was fired after appearing nude in a gay men's magazine. Curry, who is African-American, sued, saying he was the victim of racial and sexual preference discrimination. Curry was arrested in August 1998 after he allegedly conspired to plant fake e-mail messages on the firm's computers. The charges were dropped, however, after it was discovered that Morgan had paid $10,000 to a friend of Curry's to turn him in. Two of the firm's top attorneys were forced to resign as a result and in September 2000, Curry and Morgan dropped lawsuits against each other. Morgan agreed to pay $1 million to the National Urban League. The firm denied paying Curry a settlement, even though he has since been observed spending large amounts of money.

Environment and product safety:

According to Rainforest Action Network, Morgan Stanley is an financial advisor to TXU for projects involving the construction of coal fired power plants -- a major source of greenhouse gases. BankTrack, a coalition of groups that promote sustainable finance, added the projects to its list of "dodgy deals". In 2006 Morgan Stanley announced that it would spend $3 billion in low emission energy projects and global carbon markets over the next three years. To view the company's sustainability reports go here.

Anti-competitive and consumer protection:

IPO Dealmaking

From "The Vault Guide to the Top Finance Firms" (4th edition, 2001, page 77): "In April 2000 the San Francisco Examiner revealed that San Francisco Mayor Willie Brown had been granted access to several hot IPOSs underwritten by Morgan Stanley, making tens of thousands of dollars in profits. Although its virtually a standard practice for banks to give influential individuals access to high-profile IPOs, the Examiner had quoted a Morgan Stanley spokesperson who asserted that the firm did not have any other business with the city (which would create the appearance of a conflict of interest); in fact the firm had underwritten numerous bond offerings for San Francisco. The spokesman later explained that he did not mention the bonds because "all those bonds were competitive, meaning they were done on a sealed-bid basis where the [bank offering] the low true interest cost to the city wins. There is no opportunity for influence. According to the report, an unidentified "young broker" sold the shares to the mayor, independent of the bank's relationship with the city, in an attempt to develop a relationship with him." "

FINRA/NASD Fines

On September 27, 2007 FINRA fined Morgan Stanley $12.5 million to resolve charges that its subsidiary had failed to provide documents to arbitration claimants.

On August 2, 2007, FINRA fined Morgan Stanley $1.5 million and ordered it to pay $4.6 million in restitution to customers overcharged in corporate bond sales.

On December 19, 2006 FINRA fined Morgan Stanley for routinely failing to provide emails to claimants in arbitration claims and falsely claiming they had been lost in the 2001 attacks on the World Trade Center.

On December 13, 2006, FINRA fined Morgan Stanley $100,000 for inadequate supervisory procedures.

On September 5, 2006, FINRA fined Morgan Stanley $2.9 million for violating a range of SEC and municipal securities trading regulations.

On July 17, 2006 FINRA fined Morgan Stanley $200,000 for numerous violations of research conflict of interest rules.

On August 2, 2005 FINRA announced that Morgan Stanley was ordered to pay $6.1 million for fee-based account violations.

On June 5, 2005, FINRA fined Morgan Stanley $2.7 million for IPO lock-up violations.

On December 6, 2004, FINRA fined Morgan Stanley $100,000 for failing to disclose to municipal bond purchasers that they could be called before their maturity dates. The firm was also required to offer to buy back bonds sold in 171 separate municipal bond transactions.

On July 19, 2004, FINRA fined Morgan Stanley and other banks $250,000 each for failing to comply with discovery obligations in arbitration cases.

On May 18, 2004, FINRA fined Morgan Stanley $5.39 million for engaging in improper IPO allocation practices.

On November 17, 2003, FINRA announced sanctions against Morgan Stanley for giving preferential treatment to certain mutual funds in exchange for brokerage commission payments. Morgan Stanley agreed to pay $50 million in penalties and surrendered profits.

On July 29, 2004 FINRA fined Morgan Stanley $2.2 million for 1,800 late filings of reportable disclosures about its brokers.

On July 19, 2004 FINRA fined Morgan Stanley for failing to comply with arbitration discovery requirements.

On September 13, 2003, FINRA fined Morgan Stanley $2 million for conducting prohibited mutual fund sales contests among its brokers and managers in order to promote the sale of Morgan Stanley mutual funds, in violation of NASD rules.

On December 6, 2000, the NASD and the American Stock Exchange fined Morgan Stanley $200,000 for inaccurately reporting short-term interest.

On January 24, 2000, FINRA fined Morgan Stanley for manipulating the prices of 9 securities on the Nasdaq 100 index.

On April 13, 1998, NASD fined Morgan Stanley $1 million for manipulating the price of ten securities that underlie the Nasdaq 100 index on two Fridays in 1995.

Political influence (national and international):

According to the Center for Responsive Politics, as of 11/27/2008, Morgan Stanley ranked 6th among organizations whose employees/members made donations during the 2008 political cycle, with $3,265,099 in total donations. Since 1990, individuals and PACs associated with Morgan Stanley have donated well over $17 million to federal candidates. The contributions are divided about equally among Republicans and Democrats.

The firm has also lobbied for the privatization of Social Security and the deregulation of the securities industry.

History

Following the 1929 market crash, Congress passed the Glass-Steagall Act, requiring banks to choose between commercial and investment banking. J.P. Morgan stayed in banking, but his his youngest son Henry left to start a new investment banking firm a block away, along with two of the firm's senior partners -- Harold Stanley and William Ewing. The firm took many of J.P. Morgan's former clients with them to 2 Wall Street.

Morgan Stanley grew by serving as a banker to large corporations. In 1970, they helped AT&T raise money for expansion by selling bonds. The $1.6 billion offering was the largest in U.S. corporate history.

In 1972, the company moved its headquarters to midtown Manhattan, to be closer to its corporate clients. In the 1970s the firm served as a lead underwriter on numerous corporate deals. They were also one of the first firms to set up a mergers and acquisitions department, helping International Nickel take over ESB in 1974. In the 1980s, as hostile takeovers grew popular, the company played a leading role in some of the biggest deals of the decade, helping Chevron buy Gulf Oil in 1984, and KKR takeover RJR Nabisco (see Barbarians at the Gates). The firm also helped Phillips Petroleum fight a hostile takeover by T.Boone Pickens (who it had helped try to take over General American Oil a year earlier) and Carl Icahn. The firm made enormous fees for its work in these deals.

In 1986, the firm shocked Wall Street by selling a 20 percent ownership stake to the public in the form of stock, to raise capital for bigger deals. The firm remained 80 percent owned by the its 254 managing directors and principals.

During the 1990s, the firm was a leading proponent of high technology stocks. For example, in August 1995, Morgan Stanley (with star tech analyst Mary Meeker as research analyst) served as lead manager for the initial public offering of Netscape Communications. Meeker and Chris DePuy published "The Internet Report", a landmark Morgan Stanley industry report. After the dot com bubble burst in 2000, Meeker was vilified in the press, but she was never charged with a crime. She served as leader of the investment bank's global technology research team with a particular focus on the 21st century internet boom in China (in 2004, Morgan Stanley published Meeker's "China Internet Report").

In 1997 the firm merged with Dean Witter, Discover & Co. to form Morgan Stanley Dean Witter. (Dean Witter was founded in 1924 in San Francisco. Its IPO took place in 1972 and in 1978 it merged with NY-based securities firm Reynolds & Co. In 1981 Dean Witter was purchased by Sears Roebuck. The firm launched the Discover card in 1992, and Discover Group was spun off in 1992).

While some feared the merger would damage the firm, its performance belied its critics. It continued to be a leading investment bank and leader in M&A advisory work, IPS underwriting, high-yield debt and U.S. investment-grade debt.

In November 1999 the firm opened Morgan Stanley Dean Witter Online, its online trading operation.

By 2001 an internal struggle between Morgan Stanley and Dean Witter executives was out in the open, as former Morgan Stanley CEO and MSDW COO John Mack announced his departure. The Wall St. Journal reported that Mack was growing impatie3nt with Phillip Purcell, the new CEO of the combined firm, and his own subordinate position. "Mack the Knife" went to Credit Suisse First Boston, where he cut thousands of jobs. Although Morgan Stanley Dean Witter remained the firm's legal moniker, in April 2001 it announced it was dropping the Dead Witter name for marketing purposes.

The new firm remained a leader in investment banking. In February 2001 it led KPMG Consulting's $2 billion IPO. The firm also represented TimeWarner in its $165 billion merger with America Online, Texaco in its merger with Chevron, Seagram in its three-way union with Vivendi and Canal Plus, and Seagate in a deal with Veritas Software and investors from Silver Lake Partners and the Texas Pacific Group.

But signs indicated that not all was well. Revenues were hit hard after the dot.com bust. M&A revenues were down 32 percent in 2002 from the previous year, and underwriting was down 24 percent. In early 2003 the SEC began investigating MS's IPO practices. Like Goldman Sachs and JP Morgan Chase, the bank was charged with prearranging sales of new stocks at prices higher than the offering price.

In late 2005 Morgan Stanley indicated that Dubai would become the locus of its first regional office for the Middle East and North Africa. "Given the increasing sophistication and maturity of both local companies and investors, there is dearly a need for a central financial hub in the region," contends managing director Georges Makhoul, who will head the operation. "Dubai and the DIFC provide a regulatory framework, a legal system and an infrastructure for life and work that makes it easy to attract talented people and set up a physical presence in an expeditious manner." (Institutional Investor International, December 2005, Pg. 50)

The Mitsubishi UFJ Financial Group, Japan's largest bank, took a $9 billion -- or 21% -- stake in Morgan Stanley on October 14, 2008.

Other Information:

Current Economic Crisis Brings a Rapid Transformation

On September 21, 2008 Morgan Stanley announced that the Federal Reserve had granted it bank holding status, giving it more flexibility to maneuver during the financial crisis gripping the economy. The firm's new status as a commercial bank means that it is subject to increased regulatory oversight under the Bank Holding Act, and that the level of risk or borrowed money that made it so profitable in the past will be greatly reduced.

Other parts of the firm's business have suffered in recent years. Mergers and acquisitions and securities underwriting have shrunk drastically, while the bank’s real estate and hedge fund investments are "under water."

Walid A. Chammah and James P. Gorman, the firm's co-presidents and rivals to succeed John Mack as CEO are tasked with drafting the company's strategy to transform itself into a traditional holding company. Some features of the transformation include:

The bank has announced plans to cut its workforce by 16 percent since July 2008.
Gorman is leading the search for a deposit/savings bank that will help firm up the bank's deposit base, which was about $36 billion as of 11/26/08. He also oversee the firm's retail brokerage and asset management businesses.
Chammahov oversees the firm's traditionally white-shoe segments: mergers, capital raising, sales and trading, research and advisory services -- segments that have suffered from the recent economic downturn. (Louise Story, "Extreme Makeover at Morgan Stanley", NY Times 11/26/2008).

The close cooperation between Chammah and Gorman is seen as a demonstration of comity among top executives after a period of rancorous divisiveness.

Shortly after the bank announced the transformation of its status, it announced plans to sell up to a 20 percent stake in itself to the Mitsubishi UFJ Financial Group, Japan’s largest commercial bank, for about $8 billion.

In late 2007 Morgan Stanley sold a $5 billion share to the Chinese Investment Corporation. At the same time, Morgan Stanley owns 33 percent of the Chinese International Capital Corporation. (Tim LeeMaster, "Brokerage tie-ups gain A-share IPO grip," South China Morning Post, July 9, 2007)

The bank will have up to five years to shed certain assets to come into compliance with the rules that govern bank holding companies, including power plants and other commodity production investments, or shift them over to a private equity subsidiary.

The transformation is also expected to put a damper on the sky-high bonuses doled out during the stunningly profitable years of rampant speculation and sky-high leverage.

Morgan Stanley and Goldman Sachs set up the IntercontinentalExchange, a New York-based swap trading clearinghouse operating under the Fed's authority.

Financial information

Stock ticker symbol:

Fiscal year:

2007

Fiscal year:

2007

Major lines of business/segments:

Business Segments include:

Institutional Securities (capital raising; financial advisory services; corporate lending; research, etc.).
Global Wealth Management Group (brokerage and investment advisory services; credit and other lending products; cash management services; retirement services; and trust and fiduciary services).
Asset Management (including hedge funds, merchant banking -- real estate, private equity and infrastructure, to institutional and retail clients).

Link to annual report:

Annual Reports page

Additional descriptive data

Link to full list of subsidiaries:

Morgan Stanley Subsidiaries

Investor website:

Sudan Divestment Task Force

Specialized Information

Links to federal contract rankings in U.S.:

$13.5 million in federal contracts in 2007

Shareholder resolutions:

Human Rights - Sudan (sponsored by Trillium Assets Management and Amnesty International)

Executive Compensation - "Say on Pay" (AFSME and Various Investor Groups)

Summary data on executive compensation and director compensation:

Morgan Stanley's executive compensation is discussed in its2008 proxy statement

On October 28, 2008, House Committee on Oversight and Government Reform Chairman Henry Waxman (D-CA) sent a letter to Morgan Stanley Chairman John Mack and other leaders of banks that have received federal TARP aid, requesting information about the company's executive compensation practices.

Although Morgan Stanley gave its executives and employees a total of over $4 billion in bonuses in 2007, CEO John Mack did not take a bonus because of the bank's mortgage losses.

Morgan Stanley

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