Newhouse resigns at Morgan Stanley

Ousted president rejects CEO's offer of new post

April 02, 2005|By BLOOMBERG NEWS

NEW YORK - Morgan Stanley's Stephan F. Newhouse, a 26-year veteran, quit the world's second-largest securities firm yesterday, four days after Chief Executive Officer Philip J. Purcell replaced him as president with two underlings.

Newhouse, 58, turned down a new position in which he would have reported to Purcell, the culmination of one of the most tumultuous weeks in Morgan Stanley's 70-year history.

His removal March 28 prompted eight of Morgan Stanley's old guard, including former Chairman S. Parker Gilbert and former President Robert Scott, to renew calls for Purcell's ouster.

"From our perspective, it's a huge loss," Scott said. "They forced him out."

Senior executives Vikram S. Pandit and John P. Havens resigned the day after Newhouse was replaced, sparking concerns of an exodus and the biggest drop in Morgan Stanley shares in six months. The stock then surged for two days as investors speculated that the turmoil would force Purcell to sell parts of the firm that they consider undervalued.

The shares fell 38 cents to $56.87 yesterday on the New York Stock Exchange, ending the week up 2.3 percent.

Newhouse didn't return calls seeking comment yesterday.

Purcell replaced Newhouse with Zoe Cruz, 50, head of fixed income, and chief risk officer Stephen Crawford, 40, as co-presidents.

Before becoming president, Newhouse had overseen Cruz as co-head of the division that includes sales, trading and investment banking. Pandit was still Cruz's boss when she was promoted over him.

Newhouse, who had been with Morgan Stanley for 26 years managing groups that dealt with private placements, high-yield bonds and emerging-market debt, became chairman of Morgan Stanley International in London in 2000.

Morgan Stanley's board ousted President John Mack in 2001 after he lost a power struggle with Purcell.

Mack's successor, Scott, resigned in 2003, paving the way for Newhouse to take the No. 2 position. Newhouse was paid $17.5 million last year.

"Steve Newhouse is a banker's banker, a man of integrity, intellect and passionate commitment to his clients," Morgan Stanley spokesman Mark Lake said yesterday. "We respect his decision and we will miss him."

Gilbert and Scott lead the group of former executives that is battling Purcell and the board. On Thursday, they called for Purcell's resignation in a full-page ad in The Wall Street Journal, saying this week's management changes "precipitated the worst kind of crisis."

Gilbert said, "It continues to be outrageous. [Newhouse's] job was made to disappear. He is a great guy, a good leader, a great client person."

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