Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

Bloomberg News

Morgan Stanley Misses Deal Harmony With Kelleher-Taubman Clash

September 19, 2011

Sept. 20 (Bloomberg) -- Colm Kelleher and Paul J. Taubman, co-heads of Morgan Stanley’s biggest business, work on opposite sides of an ocean, disagree about strategy and share an enmity that has become the subject of company jokes.

At a meeting of more than 100 managing directors at the Ritz-Carlton Battery Park hotel in New York last year, Robert Kindler, the bank’s head of mergers and acquisitions and brother of stand-up comedian Andy Kindler, drew laughs and whistles when he ribbed the two men about their relationship, according to two people who attended the session.

“So how’s that co-head thing going?” Kindler asked, gesturing at Kelleher and Taubman, who are in charge of investment banking, sales and trading and were seated onstage with other members of the firm’s operating committee.

Neither Kelleher, 54, a gregarious former fixed-income salesman, nor Taubman, 50, a reserved investment banker, responded to the taunt, said the people, who asked not to be identified because they weren’t authorized to speak. Kelleher has been more vocal offstage, insulting Taubman in front of colleagues, according to two former Morgan Stanley executives.

The power struggle between the men, who have been running the Institutional Securities Group since January 2010, has taken a toll on the New York-based firm in frictional costs or lost business opportunities, six former executives said. While the unit generated $8.78 billion of revenue and $1.7 billion of profit in the first half, accounting for 79 percent of the firm’s total earnings, the feud has led to an estrangement of investment-banking and trading operations at the sixth-largest U.S. bank by assets, some of them said.

Gorman Acceptance

Chief Executive Officer James Gorman, who made the appointments, is aware that the men don’t have an ideal relationship, according to one current colleague and one former senior executive. He accepts the arrangement as long as their group performs and would make a change if he believed the business were suffering, the current colleague said.

The 76-year-old firm, which traces its roots to the financial empire built by J. Pierpont Morgan, was the world’s top adviser on mergers and acquisitions announced last year and runs the largest brokerage. This year the bank, with 62,964 employees, has maintained a leading position in investment banking and made strides in recovering trading market share it lost after almost collapsing during the financial crisis.

“The fact is, institutional securities just produced one of its strongest quarters ever in a very challenging environment, with the firm taking market share across many areas of sales and trading and investment banking,” Mark Lake, a spokesman for the company, said in an e-mail.

Kelleher, Taubman and Gorman declined to comment, he said.

Wall Street Feuds

Wall Street has a long history of clashes involving heads of trading and banking. The power struggle between Lehman Brothers Kuhn Loeb co-CEOs Lewis Glucksman and Peter G. Peterson alienated colleagues, leading to departures and the sale of the firm, according to “Greed and Glory on Wall Street,” a 1986 account by Ken Auletta. At Goldman Sachs Group Inc., Henry Paulson, an investment banker who was chief operating officer at the time, fought with CEO Jon S. Corzine, a former bond trader, and won joint control by threatening to leave, according to William D. Cohan’s “Money and Power.” A year later, Corzine was ousted and replaced by Paulson.

“What happens is people spend time politicking, which has some costs,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business who studies corporate governance. “It’s the CEO’s or the board’s job either to try to get them to stop feuding, or you remove one.”

Cuban Cigars, Golf

Kelleher and Taubman, top candidates to succeed Gorman as president after he drops that title and becomes chairman in January, have contrasting personalities and careers.

One of nine children who grew up in Ireland’s County Cork and a graduate of Oxford University, Kelleher is fond of off- color jokes and a daily Cuban cigar, plays golf, collects modern British art and drinks with colleagues, according to current and former executives.

A chartered accountant, he has worked at Morgan Stanley for 22 years. He ran the firm’s capital-markets business and was chief financial officer during the 2008 financial crisis, when Morgan Stanley secretly borrowed $107 billion from the Federal Reserve, the most of any bank. He managed liquidity and cut leverage as the firm faced a run by prime-brokerage clients, conducting business lying down on his office floor after suffering a back injury in a car accident.

$1 Million Fire

Taubman, the son of an accountant, was born in New York and graduated from the University of Pennsylvania’s Wharton School in 1982, joining Morgan Stanley that year. He served as a lead adviser on Comcast Corp.’s $58.7 billion purchase of AT&T Broadband in 2002 to create the world’s largest cable operator. He worked on Time Warner Inc.’s $124 billion merger with AOL Inc. and advised Microsoft Corp. on its 2008 bid for Yahoo! Inc.

The banker, who is 6-foot-3, relies on a few close allies at the firm, one former and one current colleague said. Another former colleague described him as a good person for a quiet, problem-solving conversation, not a chat over a beer.

Taubman owns a Central Park West co-op that he bought from actor Robin Williams and which sustained $1 million in damages in a 2008 fire started by a candle in a neighboring penthouse, according to an insurance lawsuit filed in July. He contributed $35,400 to support Barack Obama’s presidential campaign, according to federal records, and arranged for the candidate to meet bank executives six weeks before the 2008 Iowa caucuses.

In the weeks following the bankruptcy of Lehman Brothers Holdings Inc. in September 2008, when Morgan Stanley was close to collapse and Kelleher was on his back, Taubman helped negotiate a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc. that helped keep the firm alive.

Rocky Relationship

The relationship between Taubman and Kelleher was rocky at least as far back as being named co-heads, according to two former executives who worked under them. The men speak infrequently and don’t usually coordinate their remarks at internal presentations, the colleagues said.

The December 2009 statement announcing the appointments described a shared leadership, with Kelleher “overseeing” sales and trading and Taubman “focusing” on banking. At the time, Gorman called the arrangement, which had them running the unit together from New York, a way of “leveraging our most experienced leaders in the best way possible.”

Squabbling Children

The arrangement didn’t last. A year later Gorman demarcated the executives’ roles, moving Kelleher to London and giving each “direct responsibility” over his domain, according to a January 2011 memo to employees. The global capital markets business, which combines equity and debt underwriting, and which the two were supposed to run together, was given to Taubman.

The pair also divvied up global operational duties, with Kelleher getting Europe, the Middle East and most of Asia, the bulk of the firm’s international business. Taubman got Latin America and Japan.

One current and two former colleagues called it an official acknowledgement of the lack of collaboration. A fourth, a former Morgan Stanley executive, likened the move to a schoolteacher separating squabbling children.

Gorman said in the memo that the structure “will ensure that we are leveraging our most experienced leaders in the best way possible,” the same phrase he used 13 months earlier.

Derivatives Deals

One former senior executive said the rift between the two affects the firm’s ability to deliver a unified vision and coherent strategy, in addition to wasting colleagues’ time.

Two former executives who worked under the co-head structure said they heard Kelleher refer to Taubman in front of colleagues with a slur. One said Kelleher added that Gorman had asked for civility.

The co-heads disagree about how aggressively to push clients for additional business on the back of capital-markets deals, according to three former colleagues. Investment banks often pitch clients to win derivatives business related to a stock or bond sale, such as an interest-rate or currency swap. While the secondary deal can bring in significant trading revenue, it can also place the bank in the position of being a counterparty to a client it just advised.

With Kelleher looking to secure more deals to boost trading revenue and Taubman taking a more conservative view to avoid alienating clients, Morgan Stanley has lagged behind rivals, the executives said. Gorman said this year that he is looking to improve market share in interest-rate and currency trading and has improved efforts to bring offerings to clients.

The company doesn’t break out revenue for those businesses. It ranked sixth in interest-rates-trading revenue last year, behind Barclays Plc, Goldman Sachs, Deutsche Bank Group AG, BNP Paribas SA and Credit Suisse Group AG, according to June 7 estimates from Kian Abouhossein, a JPMorgan Chase & Co. analyst based in London.

Second-Largest Shareholder

While Taubman runs the business that has been more successful during the past two years -- the firm was the top merger adviser and equity underwriter in 2010 -- Kelleher controls the larger piece. Sales and trading revenue was more than double that of investment banking in the first half.

Both men have a lot riding on the bank’s success. Kelleher owns $5.74 million of the firm’s shares after selling 12 percent of his stock in February. Taubman bought 50,000 shares last month. His holdings are worth $17.4 million, making him the second-largest insider shareholder behind former CEO John Mack, who is stepping down as chairman at the end of the year.

Kelleher was awarded 137,072 shares for his 2010 performance, while Taubman received 137,170, according to regulatory filings. Each received $1.5 million worth of options.

Rivals for President

Although Kelleher and Taubman may have incompatible personalities, they share a common ambition, former colleagues say. Both were mentioned as dark-horse candidates to replace Mack as CEO when he stepped down at the end of 2009, and each sees himself as a potential future head of Morgan Stanley, according to three people who know them.

The presidency is a more immediate concern. On Sept. 15, the firm announced that Gorman, 53, will take the additional job of chairman on Jan. 1 when Mack leaves. Gorman will drop his president title and doesn’t plan to name a replacement for some time, according to a colleague at the bank. Kelleher and Taubman are candidates for the job, the colleague said.

The feud may hurt their chances for advancement, according to four former executives. Greg Fleming, a former colleague of Gorman’s at Merrill Lynch & Co., was brought in last year to run the firm’s asset-management unit and this year took on the role of leading the retail brokerage. It is the world’s largest, with more than 17,000 advisers and $1.71 trillion in assets.

While Fleming may benefit from the clash, he must show he can improve performance at the division, which posted a 9 percent pretax profit margin in the second quarter, far below Gorman’s goal of more than 20 percent. He’ll also need to withstand Kindler’s jokes.

The two people who attended the meeting at the Ritz-Carlton last year said the line that came closest to getting a response like the one about the co-heads was Kindler asking Fleming about his pompadour-like hairdo.

--With assistance from Christine Harper, Bradley Keoun and Zachary R. Mider in New York. Editors: Robert Friedman, William Ahearn

To contact the reporters on this story: Michael J. Moore in New York at; Max Abelson in New York at

To contact the editor responsible for this story: David Scheer at

blog comments powered by Disqus