Morgan Stanley Reshuffles Execs - Analyst Blog

Yesterday, Morgan Stanley (MS) announced the reshuffling of its top executives in an effort to focus on growth capabilities in the fast-growing emerging markets.

In order to align its business and geographic objectives in an improved manner, MS  announced that the co-presidents of the bank's institutional securities group (ISG), Colm Kelleher and Paul J. Taubman, will retain their positions and will be bestowed with more international responsibilities.

Colm Kelleher will relocate to London and will take on additional geographic responsibilities of Europe, the Middle East and non-Japan Asia. The managers of such regions will directly report to him. With his continuing role as Co-President of ISG, Colm will have direct responsibility of Global Sales and Trading business.

Paul J. Taubman, another co-President of ISG based in New York will take additional responsibilities in Latin America and Japan, where he had played a critical role in the Mitsubishi Joint Venture.  Further, managerial executives of these regions will report to Paul. With its existing position in ISG, he will oversee the Global Investment Banking and Capital Markets businesses.

Previously, the regions assigned to co-presidents of ISG were managed by Walid Chammah, Morgan Stanley International's Chairman.  Currently, Mr. Chammah will remain in London as the Chairman of Morgan Stanley International. However, he  has been deprived of operating responsibilities and will focus on the bank's highest priority clients.

Management expects the reshuffling of the duties to ensure the usage of experience of the three executives in a best way to support the growth of international franchise.

A couple of days before the announcement, Jim Rosenthal, the bank's head of technology became Chief Operating Officer succeeding Thomas Nides. Mr. Rosenthal had overseen technology and operations before he was appointed as head of corporate strategy in December 2009.

Estimate Revision Trends

The company is expected to release its fourth quarter and full year earnings on January 20, 2011. Over the last 30 days, 11 of the 18 analysts covering MS have lowered their estimate for the fourth quarter of 2010, while only 1 upward revision was witnessed. Currently, the Zacks Consensus Estimate for operating earnings in the fourth quarter came in at 39 cents, an increase of 179.0% from the year-ago quarter.

For the full year 2010, 9 out of 15 analysts have reduced their estimates, while there were no upward revisions. The Zacks Consensus Estimate for operating earnings for the full year 2010 is $2.28, up 344.7% from 2009.

MS is facing major headwinds to maintain its competitive edge and regain its industry leading position after the economic downturn. Also, there are concerns related to the company's financials being affected by the Dodd-Frank Act in the near term and Basel III in the long term. However, we believe that the company has the potential to realize the full benefits of its strategic and cost-cutting initiatives. Moreover, inorganic growth initiatives globally with a healthy balance sheet continue to be significant growth drivers.

Morgan Stanley currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell' rating. However, considering the fundamentals, we are maintaining a long-term “Neutral” recommendation on the stock.