Wirehouse reps were breathing a bit easier last week as their employers were able to step back from the brink of financial collapse.
In particular, registered representatives at Morgan Stanley witnessed a remarkable turn of events. The week before last, the New York firm was reportedly seeking a merger partner to avoid becoming the next one to go under.
But last week, the government bailout plan emerged, and Morgan Stanley announced its planned conversion into a bank holding company as well as a deal with Tokyo-based Mitsubishi UFJ Financial Group Inc. — Japan's largest banking group — to sell up to 20% of the brokerage firm for as much as $8.4 billion.
News reports late last week said Morgan Stanley was no longer negotiating with Wachovia Corp. of Charlotte, N.C., one of the firms with which it discussed a merger.
In addition, the planned purchase of $5 billion in perpetual preferred stock of The Goldman Sachs Group Inc. of New York by Warren Buffett's Omaha, Neb.-based Berkshire Hathaway Inc. was another sign that confidence was returning to the market, said a Morgan Stanley rep on the West Coast, who asked not to be identified.
"People [at Morgan Stanley] are relieved," said a Morgan Stanley rep in the Southeast, who asked not to be identified.
"It's nice to know the Japanese have more faith in us than Americans do," this broker said.
Now Morgan Stanley looks to be on the acquisition trail, instead of being a target, reps said.
"Morgan Stanley is now in a very strong position," said Deborah Aronson, manager of executive search at Diamond Consultants LLC in Chester, N.J.
As a stand-alone retail-brokerage firm, Morgan Stanley is in a unique position, she said. "If you're looking for a true investment firm, Morgan Stanley and Goldman Sachs are it."
"I think if we can remain independent, we have a pretty good shot at picking up people," said the Morgan Stanley rep in the Southeast.
"If we had been sold to Wachovia, people would have been heading for the exits," this broker added.
In announcing its conversion into a bank holding company, Morgan Stanley said it planned to expand the retail-banking services it offers clients.
Some Morgan Stanley reps were joking about their offices' being turned into bank branches.
"Are we going to have a drive-through window now?" asked the Morgan Stanley rep in the Southeast.
The firm has told brokers that the branches won't notice much difference as the firm expands its deposit activity, this rep said.
TURMOIL EVERYWHERE
The turmoil has caused brokers everywhere to evaluate their options, recruiters said.
"We're seeing a lot of movement [with more brokers'] taking meetings and doing due diligence on other firms, especially with the Merrill Lynch folks," Ms. Aronson said.
Two weeks ago, New York-based Merrill Lynch & Co. Inc. announced that it is being sold to Bank of America Corp. of Charlotte.
"[Merrill] reps are doing their due diligence so they're not under the shot clock once the [promised] retention package is out there," Ms. Aronson said.
At press time, Merrill reps had heard nothing further about the retention deal.
"Bank of America is an extraordinary bureaucracy," said the West Coast Morgan Stanley rep, who said he knows people at the bank.
"That's one of the reasons Merrill brokers are trying to jump ship," he said.
Smith Barney reps may also explore their options given the news last week that Citigroup Inc. wealth management chief executive Sallie Krawcheck is leaving by yearend, Ms. Aronson said (see related story, Page 3).
"Many felt [Ms. Krawcheck] righted some of the wrongs in terms of fixing the compensation plan and creating the exit strategy" that paid retiring reps for their books, Ms. Aronson said.
But New York-based Citigroup has been stressing to the troops its relatively strong capital position, which is a big selling point in today's environment.
"The strategy du jour is the supermarket approach," with a big bank, said a Smith Barney rep in the Southwest, who asked not to be identified.
"We were rooting for [a sale of Smith Barney] a couple months ago because it would have meant retention bonuses," said a Smith Barney broker on the West Coast, who asked not to be identified.
But recent events have made a spinoff less likely, this rep said.
E-mail Dan Jamieson at [email protected].
