Last Updated Sep 11, 2009 11:38 AM EDT
Exactly one year on, just as stock markets are recovering, Morgan Stanley's bankers are experiencing a sort of end-of-era moment themselves, with the resignation of long-time chief executive John Mack. While Mack will stay on as the firm's Chairman for another two years, the big responsibilities will effectively be handed over to incumbent chief executive James Gorman.
Mack is key to the culture that brought Morgan Stanley much of its recent resilience in the market turmoil. A former bond salesman, he is the archetypal investment partnership-in-transition CEO, constantly bolstering the firm's investment banking and trading divisions while responding with lightening-speed reflexes to every market turn.
When he was called back to the top job four years ago after former CEO Philip Purcell weakened the bank after attempting to turn Morgan Stanley into a multi-purpose banking institution, employees at the firm's Manhattan office gave Mack a standing ovation.
Bloomberg points out that in the past year, Mack has been "beaten up" on Wall Street for uncharacteristically not having taken as much risk as his rivals did. For example, Morgan Stanley's daily value-at-risk (VAR), the total amount of money it estimates it can lose in a day's trading, was $154 million during the second quarter. For Goldman Sachs, the figure was $245 million.
Still, just because Morgan Stanley wasn't putting its capital into its trading divisions during that period, that doesn't mean that it wasn't putting its capital to work. As I've written here in the past, Mack strengthened Morgan Stanley's Asian presence, as well as its retail client services divisions, and ultimately, he actually doled out more autonomy to the firm's proprietary trading unit.
Perhaps his most underrated legacy at this point in history will turn out to be the partnership Mack created with Japanese giant Mitsubishi UFJ. While it was initially created out of necessity for the bank's survival last year, Mack may have formed the beginning of a long-term East-West franchise.
So what will Morgan Stanley look like under James Gorman?
Most likely, it will see a significant strengthening in the Mitsubishi UFJ partnership, as well as other tie-ups. In this respect, Gorman's silence is almost telling: "We're pretty clear about what kind of company we're going to be," Gorman told Bloomberg. "A lot of what has to happen now is to really focus on day-to-day execution."
Unlike Mack, Gorman has no investment banking or trading experience, instead hailing from a background at McKinsey, a consulting firm. "Gorman's [banking] background is in selling stocks and bonds to retail investors. That's far less profitable than outgoing CEO Mack's bond business specialty but far less risky," writes Matthew Yeomans in The Big Money.
Chief executives from backgrounds at McKinsey usually love expanding the scale of the companies they run through mergers, acquisitions (hostile or friendly) and less official partnerships. At 51, Gorman is still young, and it's likely that with so much emphasis on Asian markets these days that he's going to want to use the Mitsubishi UFJ link to make inroads in that region. It's also likely that Morgan Stanley will see a much less centralized operational environment, with managers of different divisions making decisions more or less as they please.
In some senses, you could say that it's the end of the unilateral banking era for Morgan Stanley then, and the beginning of a multilateral one. If Gorman gets it right, the rewards are higher than they've ever been.