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How bad is it at Morgan Stanley?

Is Cruz’s exit an indication of worse things to come?

Maybe: Dick Bove, a Punk, Ziegel & Co. analyst, told the Wall Street Journal that the removal of the high flying female co-president suggests MS will reveal something nasty when it unveils its 4Q results in a few weeks’ time.

So far, Mack’s movers and shakers haven’t done too badly (at least compared with Citigroup and Merrill Lynch). At the start of last month Morgan Stanley said it suffered $3.7bn in trading losses in the first two months of this quarter, and its potential exposure totalled $6bn.

Staffing-wise MS also looks in fairly good shape compared to the likes of Merrill – while Stan O’Neal was adding thousands of people to Merrill’s headcount this year, John Mack was trimming them; Morgan Stanley now has 7,500 fewer employees than in 2006.

Will this be enough to see off the sub-prime beast? On one measure, at least, the answer may be no. Research firm CreditSights released a report in October showing that in the third quarter Morgan Stanley had more hard-to-value and potentially toxic level-three assets than any other US brokerage – $90bn, vs $72bn at Goldman and $20bn at Bear Stearns.

Is Morgan Stanley about to do a Merrill Lynch and revise its losses substantially upwards? And if so, will John Mack be next in the firing line? Readers of the New York Times’ DealBook
blog already claim Mack’s hands are dirtier than he’s letting on.

Comments (10)

  1. Morgan Stanley never recovered from the brain drain under Purcell. Mack may try, but the glory days are gone my friends.

  2. Mack’s strategy was wrong and he’s paying the price – too big a push into prop trading without proper controls in place, VaR up 50% between third quarter 2006 and third quarter 2007. Mack has tried to be Goldman, and he has failed.

  3. a dreadful place.

  4. I just left MS before the summer… Some of us were really worried about the fact that we were not using the right models to price and risk manage these products. We warned people. But again, since the fees kept coming in, the supposedly “senior” management didn’t really care about the recommendations from risk management. I agree with Anonymous, Jack the Knife thought he could take on GS just like that and he may be failing. But alike GS, MS may post soon huge losses. So the race is not over. But the winner will be the one who will lose the less, not earn the more. Interesting performance criterion for so-called professional asset managers, isn’t it? Jack, continue to expand in commodities (but please improve your risk management there), PE, and emerging markets. But stop listening only to Sales & Trading! We all know you were a successful bond trader when you started but trading without proper risk management systems and controls is like driving a sport car without breaks… you look cool when you’re driving it upwards or downwards but if you cannot manage an abrupt turn, who’s the phoney?

  5. I went for an interview at MS several months ago – at the time they said maybe that particular role wasn’t for me but they wanted to talk to me again in maybe 6 months. a few months later, went there for another interview for something unrelated, got to the very end stage, they said they wanted more direct experience (which was fine with me) but I was told (through the 3rd party recruiter) that they’d still like me as a 2008 recruit (for what – I don’t know.) With all the sub-prime stuff happening at the same time, I’m not sure how the land lies. The recruitment firm is avoiding all my questions (and suggesting roles in other firms), and I know that MS have had a recruitment freeze so basically I don’t know how the land lies.

  6. Same here Anon, Accounting. Went for an interview, they said they did like me but cant make a firm offer now but in the new year will do so. Now i was initially quiet innocent to believe them but i don’t think they will come around in 2008 with an offer!! i reckon there’s still some bad worms to come out of the can?!! but i may be wrong and there may be a genuine freeze, but then agan you can’t trust anyone these days, even with an offer letter!!!!

  7. I encountered the same problems when interviewing for experienced associate positions within tech research (HK) lately. I had a total of two different interviews, and they both ended up with a hiring freeze. I had similar comments as Anon and Nana53: good candidate, but can’t hire now although would consider in 2008. I suggest looking elsewhere after bonus season or riding it out at your current job until things clear up … whenever that is.

  8. Morgan Stanley has weathered the strom.. It will cruise past its competitors in 2008..

  9. went for a internal role that had been advertised since April 2007. Was just going to finalise my move before I had to go on Paternity leave. Alas, on my return the role had been filled ‘internally’!! Looks like someone from top decided on a headcount freeze during November. Nearly all the internal Accounting roles pre-15th October that were available disappeared.

  10. What the heck!?? New starter receives a guaranteed CASH bonus offer and instead Morgan announced today that some of it will be paid in shares= is this ALLOWED? What is HR Thinking?? Lying to newstarters is not going to win brownie points people!

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