Morgan Stanley May Suffer After Spinoff
biz.yahoo.com
Tuesday May 10, 9:12 am ET
By Michael J. Martinez, AP Business Writer
Morgan Stanley CEO Purcell Warns on Earnings Hit From Discover Spinoff, Downplays Departures
NEW YORK (AP) -- Morgan Stanley's bottom line will likely suffer after the spinoff of Discover Financial Services and the division's strong cash flow, but the company is focused on expanding its other businesses to compensate, Chairman and Chief Executive Phil Purcell said Tuesday before a standing-room-only crowd of investors.
Purcell, speaking at UBS' Global Financial Services Conference, downplayed the recent high-level executive departures that have fed criticism of his leadership. Five of the 14 members of Morgan Stanley's executive committee left the company over the past six weeks.
"When you choose some people in a new management structure, you don't choose others, and in the process we lost some valued members of our management team," Purcell said. "We are very happy with the choices that we've made."
The departures -- which included the highly regarded investment banker Joseph Perella -- added to calls for Purcell's job from a group of eight former executives and shareholders, who had already been blaming Purcell for what they felt was mediocre performance and a lagging stock price.
This dissident group has proposed replacing Purcell with one of their number, former President Robert Scott, and has been courting institutional investors to back their plans for the company.
In his first major address to investors since the furor over his leadership erupted in March, Purcell said the firm's strategy remains sound, but admitted that the company's return on equity has been "middle of the pack" -- unusual for a company that has traditionally led Wall Street's brokerage houses in most measures of success.
Purcell and new co-presidents Zoe Cruz and Stephen Crawford admitted the company's returns have lagged over the past few years as the company made investments to increase its size and reach, but that the new leadership at the company would focus on improving the company's bottom line.
"I give you my assurance that every decision we make is focused on our return to premium status in relation to our peers," Purcell said.
Purcell said the Discover spinoff would allow the credit card division to grow quickly, especially since it would have control over its own substantial revenues. Those revenues in recent years had gone to growing other divisions within Morgan Stanley, but with a recent Supreme Court decision breaking the hold of Visa and Mastercard on banking debit cards, Purcell said a spinoff would allow Discover to thrive on its own.
"Discover will need the capital it has been generating," Purcell said. "This (spinoff) was not a rushed or reactionary decision."
The executives' candor was well received by the attendees, many of whom represent large institutional buyers, including pension funds and mutual funds. The dissident group was hardly mentioned in the question-and-answer session, but Purcell said he understood investors' frustration and would work toward improving the company.
"We are the first to admit that the media frenzy over recent events has been disruptive," Purcell said. "The proof is in the doing." |
