• Firm Leadership

Morgan Stanley in a Changing Europe

As the firm marks its key anniversaries in Paris, London and Frankfurt, Chairman and CEO James Gorman and President Colm Kelleher look back over the past 50 years.

This is set to be a historic year for Europe. Brexit has been formally initiated. Landmark elections hold the potential to alter the course of the European project. The future of globalization itself seems unclear after the U.S. elections.

Although the firm is now larger than ever, and more competent and diverse, every staff member continues to put client interests front and center.

2017 also marks three historic anniversaries for Morgan Stanley: 50 years in Paris; 40 in London; 30 in Frankfurt. Even for as old and storied a firm as ours, longevity is no small achievement. Just in the span of our time in Europe, some of the brightest stars in the financial firmament have vanished.

But what does our half century in Europe tell us about today’s upheavals?

Our reading of Morgan Stanley’s history leaves us confident about the future. Over the decades, the firm and its clients have confronted challenges no less daunting than today’s. We have thrived in the face of change and uncertainty, a capacity we retain still today.

Arrival

When Morgan Stanley first made its way from New York in 1967, it was in response to a severe problem back home. To stem a chronic outflow of capital, the U.S. had imposed taxes and controls that made it costly for European firms and U.S. multinationals to fund operations in New York. Thus, there was an opportunity to create a market for U.S. capital outside U.S. borders. What started with an Italian highway construction company borrowing in U.S. dollars, a currency not its own, soon came to be known as the Eurobond market. It was into this market that Morgan Stanley ventured in 1967. By 1969, we were not just a participant, but a market leader, heading Standard Oil’s historic $50 million foray into Europe.

Similarly, the opening of our London office in 1977 was not only a nod to the City’s promise as a financial center; it was also a response to a larger problem and, hence, opportunity. The problem was the oil shock of 1973-1974, when OPEC quadrupled oil prices. The opportunity was for financial firms like ours to “recycle” the windfall oil producers were looking to invest, and finance the deficits oil consumers were looking to fund. London became the center of this business. Gradually at first, and, after the announcement of Big Bang financial reforms in 1983, much more rapidly, capital market activity expanded in new directions, including mergers and acquisitions, fixed income, currencies, and derivatives.

By the time our Frankfurt office opened in 1987, cracks were visible in the post-war European order. When the Berlin wall fell two years later, it was clear that new financing needs would beget opportunities. The Maastricht Treaty’s vision for a European Monetary Union in 1992 greatly expanded the scope of economic and financial development. As Europe unified, so did European finance.

But the story of our anniversaries is not just about prescient office openings and historic deals. It is also the story of our intangible culture.

Culture

When Morgan Stanley inherited the investment banking mantle from the century-old Morgan Bank in 1935, the year that the Glass-Steagall Act split apart commercial and investment banking, it also inherited the culture of the stately House of Morgan. That culture can be summed up in two words: relationship banking. A banker was a trusted advisor who studiously avoided the limelight. This ethos was captured by former Chairman Parker Gilbert’s dictum that one should appear in the press only on three occasions: at birth, at marriage, and upon one’s death.

This tradition of prudence persisted for decades and through the Big Bang era, as London became a global center of finance. But there was also change in the air. A new breed of global professional was breaking up the City’s old boys' monopoly. Three piece suits and long lunches disappeared as the best and the brightest were hired from around the globe. Innovation and technology were prized as never before.

At some point, however, the financial sector’s vision of endless possibility went awry. By 2008, the year of reckoning, many long-established Wall Street firms had gone down. Even Morgan Stanley found itself on the brink. It was a humbling time for all. To weather the crisis, we needed to revert to a more prudent business model, shifting from riskier pursuits like proprietary trading to investment banking and wealth management. In other words, we renewed our commitment to the firm’s original brand of relationship banking.

Even in the age of anonymous trading, through the excesses of the pre-crisis years, that culture of relationship banking never died at Morgan Stanley. Although the firm is now larger than ever, and more competent and diverse, every staff member continues to put client interests front and center. Our operating committee continues to be comprised not of individual stars, but of experienced team players with an average of 20-plus years at the firm. The best of the old ways live on.

A Final Thought

It was said of America's oldest banking dynasty that “the history of Morgan is the history of finance itself.” We think that remains the case today: For the last 50 years, Morgan Stanley's history in Europe has been the history of European finance. As we look on the continent's current difficulties and dilemmas, it is reassuring to know that the firm has been here many times before. Indeed we were here before there was a European Union, before there was anything that could be called a European financial market, and before London was its center.

To our clients, Morgan Stanley’s value has always been a capacity to see opportunity even in the most pressing times. Keeping alive a tradition handed down from the House of Morgan, our business model remains anchored in client relationships bridging the decades and spanning the continent. That gives us staying power. Whatever the changes to Europe’s economic and financial landscape, We are confident that the firm and its clients will continue to flourish in a changing Europe.

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