In his column Tuesday, The Wall Street Journal's Dennis Berman
launched
a guessing game into who might lead Morgan Stanley after chief
executive John Mack (pictured) retires, probably in 2010. The leading candidates,
according to Berman: co-presidents Walid Chammah and James Gorman, with
chief financial officer Colm Kelleher and investment banking chief Paul
Taubman as dark horses. Whoever takes the job will oversee a different
bank from the one Mack inherited in 2005; Morgan Stanley, like rival
Goldman Sachs Group Inc., became a bank holding company in September.
What that means going forward is still unclear, which drives some of
the speculation. One speculative nugget Berman overlooked: the
possibility that an outsider may get the board's nod.
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Prior to the
Mack speculation, the media has been actively wondering if the change
to a bank holding company means Morgan Stanley would acquire a
commercial bank. With the Treasury Department's $10 billion TARP
capital infusion, the common wisdom suggested Morgan Stanley might seek
a depository institution. Such a strategy would clearly benefit
Gorman's candidacy; the Australian Gorman ran the retail brokerage unit
before becoming a co-president with Chammah, a 15-year veteran of
Morgan's financing and investment banking business. While the bank
reportedly has made efforts to gather deposits from retail brokerage
customers, it hasn't taken a major plunge by bidding for a National
City or a Chevy Chase Bank.
Moreover, buying some distressed
commercial bank isn't likely to provide new talent for Mack successor
sweepstakes. After all, Morgan's board isn't going to hand the reins
over to someone who has presided over the wreck of another institution.
But what if Morgan Stanley merged with a healthier institution? We're
not thinking here of a sale, like Merrill Lynch & Co.'s to Bank of
America Corp., which would see Morgan Stanley's name disappear but a merger
that leaves Morgan in control of the combined institution. Morgan
Stanley targets bantered about in the media include Capital One, Royal
Bank of Scotland plc's Citizens Financial Group and Boston Private
Financial Holdings Inc. All would offer some fresh blood, and new
thinking -- something perhaps necessary in this new era -- but none are
likely to receive the board's time because these are relatively small
institutions without the breadth of a firm like Morgan Stanley.
A truly transformative merger, a big-time deal would be necessary to
bring a new face for the board to consider. And aside from recurrent
rumors of Morgan Stanley rejoining its
long-lost and now very distant sibling, J.P. Morgan Chase & Co.,
there is the buzz of a Goldman Sachs merger prompted by sightings of
Mack dining with Goldman chief Lloyd Blankfein, who at age 54 would run
the combined bank. But don't bet on that.
After all, why would Mack
fight so hard for Morgan to survive the crisis as an independent
entity, only to give it away to Blankfein or Jamie Dimon? No, Mack
would likely seek out a deal that would bring both talent and deposits,
but leave much of Morgan Stanley still in place. There are few such
targets that would offer Morgan Stanley such an opportunity, but two
healthy institutions come to mind: Wells Fargo & Co. and PNC Financial Services, with PNC the
likelier target.
While Wells may be the larger of the two banks, PNC carries with it an added bonus, a 47% stake
in money manager BlackRock Inc. And in BlackRock lies the talent that
Morgan Stanley may seek. The firm's CEO Larry Fink was oft mentioned as
a possible Merrill Lynch CEO back in 2007 before John Thain won the
contest. Now, he may get a chance to test his mettle at a Wall Street
institution after all.
Either way, it's too early to tell what option Morgan's board will choose, but the race is on to speculate. - Matthew Wurtzel
Matthew Wurtzel is the editor of Dealscape.
