Abigail with attitude: Rise of Greg Fleming and Morgan Stanley’s FICC problem


Abigail Hofman
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I hear that an article published recently by Reuters is causing waves at Morgan Stanley. The thrust of the piece – entitled ‘Wall Street’s most eligible banker Fleming waits for a suitor’ – is that 50-year-old Greg Fleming, the head of Morgan Stanley’s wealth and investment management business, might succeed James Gorman as chief executive. According to the piece, Fleming is also a flight risk as he possesses the talents to be chief executive of another financial firm.

Apparently, some in Morgan Stanley’s investment banking unit take exception to the implication that Fleming is influencing decisions in the securities area as well as his own private banking world. Fleming has undoubtedly done a good job at building Morgan Stanley’s wealth management franchise and improving its pre-tax profit margin. However, investors might become nervous if articles are now appearing in the mainstream press hinting that gregarious Greg might bolt for a bigger role elsewhere.

I’ve known Fleming for the best part of a decade; he’s a very smart banker. I will never forget meeting him in Washington in 2008, at the height of the financial crisis. Merrill Lynch was on its knees and had just been sold to Bank of America. Greg looked dog-tired after many sleepless nights trying to save the firm. But he still had time to give me his perspective as the financial edifice threatened to crumble around us.

Surely, the elephant in the room is what Morgan Stanley will do about its under-performing fixed-income business. "FICC has become a bit of a bastard child for Stanley," my mole mused. "They have failed to reinvigorate that business post the crash and I think they need to make some tough choices. Essentially, should they follow UBS and do a big-bang restructuring or simply let it wither away?" Mole might be right. Indeed, Morgan Stanley has been trying to sell parts of its commodities business for a while. But as the boom in bonds is probably over, how negative will a reduction in Stanley’s FICC business be for the firm that is a top M&A and equities house?

Talking of equity offerings, on February 19 the Financial Times’ front page trumpeted: ‘Listings worth $8bn lined up in IPO flurry’. The article discussed the resurgence of the European equity issue market as private equity backers of companies look to offload their wards of court. If all the IPOs go ahead as planned, the first quarter of 2014 will be the strongest start to a year since 2007. Stories like this disquieten the Cassandra-like Abigail with Attitude column.

I am also worried about rumours that the independent investment bank Moelis & Company might be thinking of going public. I don’t quite understand why an independent investment bank, which claims to do things differently, wants to joint the league of publicly listed companies. However, such an event would allow senior staff to reap some nice rewards. I remember the unrelenting furore that surrounded the IPO of private equity partnership the Blackstone Group, in June 2007. The shares were priced at $31 and then crumpled. They only reached the issue price again in late December 2013: a six-and-a-half year wait for those retail investors who had rushed to purchase at the flotation. I have always believed that when those in the know, such as private equity professionals and smart investment bankers, are looking to sell, you should not be buying.

How was your month? Please send news and views to Abigail@euromoney.com