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Friday, July 21, 2017

Friday Feature Book Review: The Fight for the Soul of Morgan Stanley: Blue Blood & Mutiny by Patricia Beard モルガン・スタンレーのための文化的な戦い :ブルー・ブラッド&ミューティニー: パトリシア・ビアード

Big banks seem to have recovered fully in 2017, and Morgan Stanley, under CEO James Gorman, seems ahead of rival Goldman Sachs today. Financial history is tied to both JP Morgan & Morgan Stanley. We now consider Glass Steagall again, but it was in fact this law, the Banking Act of 1933, that split the two in the first place. We now say "too big to fail" after the Lehman collapse, but a similar fear of bank failure in the US, had the same feeling almost 90 years ago. In fact between 1929-1933 over 4000 US banks closed leaving USD400 million in losses to retail depositors. There was no bail out, just panic. Securities had to be separated from banking in the eyes of Congress. 

This was a very different time, when ethics were paramount, and partnerships were dominant. Old school was the norm, and relationships & reputations of partners, true owners, counted for everything. The classic banker then had roll-top desks, with legal handguns allowed to be stored in them! This book covers a wide history including how hats were to be worn by all partners until JFK, plus many other details of the time, came as a curious eye-opening surprise. This book is a great review of how little finance has changed over time. The firm was born after the great depression and two years after the Glass-Steagall Act. The first part of this book explains how Howard Stanley and J.P. Morgan Jr. created a new Investment Bank, Morgan Stanley in 1935. 

J.P.Morgan Jr.'s  quotes and motto have been a part of modern history, that these 2 quotes certainly represent the core values of the firm. "The banker must at all times conduct himself so as to justify the confidence of his clients in him and thus preserve it for his successors." This seems to contrast greatly with the wild stories of bankers behaving badly today. However, more to the point, "I should state that at all times the idea of doing only first class business, and that in a first class way, has been before our minds." It is all very powerful stuff, and a solid foundation of values for a great financial institution.

The second part of this book, is about how this fell apart after a major M&A miss-step, and how the company had to find its way back to the top of investment banking again. Retail and institutional groups do not mix well culturally, and this book just proves this case. In many ways, this is a business case study on why not to merge different cultures like Dean Witter & Morgan Stanley. New CEO Phil Purcell was very unlike old CEO John Mack, and the difference showed. The clues were not clear, but more subtle, and took years to fester, before being brought to the surface. In many ways, this seems like a Harvard Business School case study, on what cultural gaps to avoid in major M&A deals.

The Top 3 Takeaways from this book that really impact any reader are:

1) There is no limit to being too careful with other people's money. Ethics are a true test of any financial firm long term.

2) Reputation can be a weapon, and was often used by JPMorgan. His rivals sometimes gave up before they should have due to a fear of defeat.

3) The long history and legacy of Morgan Stanley, as a white shoe firm, is impressive. So too are many of the deals done with Fortune 500 firms going back 80+ years.

This is a real life account of both historic roots and recent political battles in the firm. It is worthy of any equal Julius Caesar battle with Brutus, or other senators in ancient Rome. Secret meetings, cultural clashes, men in the shadows all come into play. It has many acts that seem like a thriller, so best to read and enjoy the book as it is told smoothly and with high style. If you like financial history, M&A deals, excitement and thrills from a boardroom, then this is for you. Deal junkies will be very satisfied.

Please visit us for our Friday Feature Review where TMJ Partners will review books, movies, services and anything else with a financial theme.  Follow us now for our free weekly updates, just click here. Thank you for reading and learning more about how money is made in finance!

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