Case 39 - Case 39 Morgan Stanley: A Leading Global...

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Case 39 Morgan Stanley: A Leading Global Financial Services Firm
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History of Morgan Stanley Morgan Stanley was originally founded in New York on September 5, 1935 as an investment bank by Henry S. Morgan, and Harold Stanley of J. P. Morgan & Co. along with others from Drexel & Co. In 1964, Morgan Stanley created the first computer model for financial analysis.
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On February 5, 1997, the company was acquired by Dean Witter, Discover & Co. The spun-off financial services business of Sears Roebuck. To foster brand recognition and marketing the Morgan Stanley kept it name. The merger was controversial, and the firm lost some of its blue chip status with its corporate client base. The two firms could not have been more different. Morgan Stanley, a Wall Street investment bank founded in 1935, specialized in lucrative financing deals around the globe. Dean Witter, a chain of retail stockbrokers
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Purcell, as Dean Witter’s CEO, convinced Morgan Stanley that the financial supermarket concept could work by combining investment banking services with a strong sales force pushing stocks to Main Street investors at the retail level. Morgan Stanley, could do everything from the financing of initial public offerings to the sale of that new stock to investors across the country. Citigroup and Merrill Lynch have succeeded in fusing high finance with retail commerce, but Morgan Stanley stumbled in its attempts.
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This case was prepared by Suril Patel, Marc E. Gartenfeld, Dorothy Dologite, and Professor Robert J. Mockler of St. John’s University. © Robert J. Mockler.
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The situation got so bad that a coalition of eight former Morgan Stanley bankers sent a confidential letter to the company’s board on March 3, 2005, suggesting some steps the directors might take to improve the company’s performance. Instead, on March 28, Purcell demoted Stephan Newhouse, the firm’s Morgan-Stanley-bred president, and replaced him with Zoe Cruz and Stephen Crawford, two loyalists from the Dean Witter side of the house. The next day several members of Morgan Stanley’s management committee resigned from the firm. The Gang of Eight went public with their criticism of Purcell’s management style, taking out newspaper ads
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In response to the criticism, Purcell agreed to spin off the firm’s Discover card unit but maintained an iron grip on the levers of power at Morgan Stanley. But the high-level defections from the once vaunted investment bank continued in April 2005, when 18 more executives departed for rival firms.
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“The drip, drip, drip of top leadership at Morgan Stanley convinced institutional investors that the dissident group was right,” says Richard Ferlauto, director of pension and investment policy at AFSCME.
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In June of 2005, in an extraordinary capitulation to a group of dissident former executives known as the “Gang of Eight,” Morgan Stanley CEO Philip Purcell announced his resignation. Although Purcell tried to portray his departure as a dignified response to personal attacks against him, a
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This note was uploaded on 01/13/2012 for the course MGT450 450 taught by Professor None during the Spring '11 term at Ashford University.

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Case 39 - Case 39 Morgan Stanley: A Leading Global...

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