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AIG's Prospects Not at the Top of the List for Morgan Stanley's New CEO

Saturday's New York Times had a compelling portrait of Morgan Stanley's new CEO, lanky Australian James Gorman. It described his amateur boxing, admiration for predecessor John Mack, and plans to be more client-focused and less risk-taking. In essence: he promises not to swing for the fences and strike out - like Mack.

One subject he didn't talk about: American International Group. But Gorman's opinion is important because Morgan Stanley, which was also a casualty of the subprime mortgage crisis, in some ways holds AIG in the palm of its hand.

In September 2008, when the walls were caving in at the giant insurer, the New York Federal Reserve put Morgan Stanley in charge of "exploring the options" for AIG. Like many of the Fed's frenzied and seemingly arbitrary decisions at the time, no one actually defined what that meant. It became clear later on that Morgan Stanley would play a primary role in any AIG units that were to be spun off in initial public offerings.

And this made perfect sense. In some ways, Morgan Stanley shadowed AIG, making the same kind of bad bets, and making taxpayers pay for them with a $10 billion federal bailout. But Morgan Stanley had valuable expertise in IPOs. It was once the king, having successfully brought dozens of dot.coms to market for billions of dollars and earning seven percent commission for each.

But can it do the same for the pieces of AIG? The jury is out. While the IPO market has recently shown signs of life, it was weak last year, and Morgan Stanley no longer has an exclusive franchise.

As for AIG, it's unclear when or if it can get IPOs off the ground. There was a lot of chatter about that when its Asian life insurance units, AIAand Alico, were spun off into special purpose vehicles just before the time AIG CEO Robert Benmoschecame on board in August. There was also talk that AIG's property casualty unit Chartis would go public.

During that time AIG's shares soared to nearly $56. They are now trading at half that price. Benmosche has reportedly squelched IPO talk until things look better, and everyone is eagerly awaiting AIG's fourth quarter earnings to see if they will get better.

As for Morgan Stanley's Gorman, he talked about trading, investment banking, advising clients, everything, in fact, but IPOs. But one thing is clear: he is risk-adverse.