NEW YORK—Morgan Stanley, the 74-year-old financial servicing giant, survived the recent Wall Street financial crisis better than most of its peers thanks to some tough talk from its longtime leader John Mack.
Today, the company is on sound footing operating in an intriguing era for the industry. The financial crisis of 2008 eliminated two of its largest competitors—Lehman Brothers and Bear Stearns Cos.—and weakened other rivals.
Some competitors have revived themselves—notably Citigroup Inc. and Bank of America Corp.—both of which recently repaid their TARP obligations and are under less federal restrictions, making them more competitive with their peers.
This month, Mack, 64, made it official that he would step down from his CEO position and turn it over to James Gorman next month.
But Morgan Stanley had its own share of obstacles.
Clinging to Life
In September 2008, during the height of the financial crisis, the Federal Reserve approved Morgan Stanley’s application to convert from an investment bank to a financial bank holding company, a process that had taken several months.
Going forward, Morgan Stanley is subject to greater scrutiny and regulations by the federal government (Fed) and the Federal Deposit Insurance Corporation (FDIC).
The move gained Morgan Stanley access to the Federal Reserve Discount Window, a line of credit open to depository institutions such as credit unions, savings and loan associations, as well as commercial and savings banks. The firm is no longer an investment firm, but a depository institution that acquires funds through deposits by the general public.
A further benefit to the firm, Morgan Stanley can now tap into the Primary Dealer Credit Facility (PDCF), created by the Fed after the Bear Stearns collapse in 2008. This facility is an overnight loan that is provided to primary dealers, which are commercial banks and certain brokers. The PDCF allows the Fed to lend money directly to investment banks and was a novel break from the Fed’s traditional way of doing business.
“Morgan Stanley sought this new status from the Federal Reserve to provide the Firm maximum flexibility and stability to pursue new business opportunities as the financial marketplace undergoes rapid and profound changes. The Firm will pursue initiatives to expand the retail banking services it offers its retail clients and build a stable base of core deposits,” said Morgan Stanley in a press statement.
