Wall Street banks such as Morgan Stanley will benefit more from shareholders demanding reforms than regulators imposing new rules, CLSA Ltd.’s Mike Mayo said.
Activist investors including Nelson Peltz’s Trian Fund Management LP and Dan Loeb’s Third Point LLC will have more success in changing the biggest U.S. banks by holding managements’ “feet to the fire,” Mayo said today in a Bloomberg Television interview with Betty Liu.
Loeb’s hedge fund said yesterday it bought a stake in Morgan Stanley, and predicted the New York-based bank’s shares may double as brokerage margins improve and management devises a “bold fix” for the fixed-income trading business. State Street Corp. (STT:US), the third-largest custody bank, came under pressure from Peltz in October 2011 to increase profitability, cut expenses and put shareholder returns ahead of acquisitions.
“We need more Dan Loebs than we need regulators,” Mayo said. “We need more shareholders to step up to the plate.”
Morgan Stanley (MS:US) should “upgrade” its directors, with one member of the bank’s board “familiar to us from previous corporate governance battles we have fought against moribund boards,” Loeb wrote in a letter to investors. He previously pushed for an overhaul at Yahoo! Inc. and won the ouster of Chairman Roy Bostock, who is a Morgan Stanley director.
Morgan Stanley also needs to improve its fixed-income, currency and commodities business this year, Third Point said.
“If we had more investors like Dan Loeb, we likely would have had fewer of the problems of the financial crisis,” Mayo said in a telephone interview. “This is a seminal event,” he said. “To have this sort of high-profile activism at a brokerage firm has been unheard-of in recent years.”
Morgan Stanley plans to reduce some risk-weighted assets, and Chief Executive Officer James Gorman is cutting 1,600 jobs from investment banking, trading and support staff, a person with direct knowledge of the plans said yesterday.
Billionaire Peltz disclosed a 5.1 percent stake in Lazard Ltd. (LAZ:US), the biggest independent advisory firm, in June last year. Peltz criticized the Hamilton, Bermuda-based company’s pay and cost structure in meetings with senior executives before the disclosure, people familiar with the matter said at the time.
Morgan Stanley advanced 3.5 percent to $20.31 as of 1:21 p.m. today in New York. The stock is up 6.2 percent this year, more than double the Standard & Poor’s 500 Index.
To contact the reporters on this story: Laura Marcinek in New York at email@example.com; Betty Liu in New York at firstname.lastname@example.org; Michael J. Moore in New York at email@example.com
To contact the editor responsible for this story: David Scheer at firstname.lastname@example.org