Surprise surprise...the crisis has hit yet again. Zoe Cruz, the most senior woman on Wall Street, became the latest high-profile casualty of the US subprime mortgage meltdown when she lost her job Thursday as co-president of Morgan Stanley. Ms. Cruz’s counterpart at Bear Stearns has also been ousted. This news came three weeks after Morgan Stanley revealed it had lost more than $3.7bn on a subprime mortgage bet that went disastrously wrong. Along with Cruz and her counterpart, the jobs of the chief executives of UBS, Merrill Lynch and Citigroup have also been claimed as a result of the crisis.
Title: Subprime crisis claims top Morgan banker
Source: Financial Times
Date: 11/30/07
Ms. Cruz, 52, who ran Morgan Stanley’s fixed income business, was made co-president in 2005 by Philip Purcell, fuelling the revolt that eventually led to his ousting as chairman and chief executive. Cruz's promotion prompted the departure of Vikram Pandit, who had been her boss, and several other senior executives who refused to return following Mr. Purcell’s departure unless she was removed. John Mack, Morgan Stanley’s chairman and chief executive, initially decided to take no action against Ms. Cruz after discussing the matter with his board. Mr. Mack said Cruz had made enormous contributions to the company in her 25 years of service. “She has helped to build some of our most important and successful businesses and worked tirelessly to strengthen and grow our global franchise.” But after a longer “post-mortem," he concluded that changes were needed. The new co-presidents are Walid Chammah, a former head of investment banking who recently moved to London to head Morgan Stanley International, and James Gorman, who joined from Merrill Lynch last year and now heads the wealth management arm.
As a result of the subprime mortgage crisis, the market has deteriorated further in recent weeks, increasing the potential loss on Morgan Stanley’s remaining mortgage-linked investments. However, insiders say no further problems have been uncovered and the maximum potential loss from its subprime exposure remains at the stated $6bn.
After I read this article, I couldn't help but think that Ms. Cruz's ousting was a result of discrimination. The article gave no concrete reason(s) as to why she was fired besides the crisis, and it was also stated that after her promotion, several male executives refused to work under her. Although several other employees were listed as being fired, it became especially apparent to me that Cruz's departure was unfair and unjust. Maybe there has been some past problems with Cruz that I am unaware of, but judging by Mr. Mack's comments, I find that highly doubtful. To further my opinion, two new male presidents were hired. Now I am not some gung-ho feminist that thinks every little thing is an injustice to the female gender, but this case just strikes me as being particularly discriminating. The article also stated that she was approached about becoming chief executive of Merrill Lynch, but that job went to John Thain. Every piece of evidence here screams injustice. From what I've read Cruz is an extremely brilliant female who is capable of many things, so I do not understand why she was fired. Yes, the crisis has caused a great amount of turmoil and it could be the reason as to why she was ousted, but something just doesn't feel right to me here. I hope to do some more investigation into this topic and will hopefully get back to you soon about any findings I come across.
1 comment:
It just never ends at Morgan Stanley
http://biz.yahoo.com/ap/071127/morgan_stanley_age_bias.html?.v=1
AP
Regulators Examine Morgan Stanley Cuts
Tuesday November 27, 3:17 pm ET
Age-Bias Probe Investigates Morgan Stanley Layoffs, Seniority-Based Production Requirements
NEW YORK (AP) -- Morgan Stanley, like several other brokerage firms, expects experienced financial advisers to generate more business than less experienced ones. Now regulators want to know if the firm discriminated against older brokers who didn't meet that higher standard.
In a letter dated Nov. 6 obtained by Dow Jones Newswires and sent to hundreds of former Morgan Stanley brokers, the U.S. Equal Employment Opportunity Commission said it is conducting an investigation into large-scale layoffs by the New York-based firm in August 2005.
A spokeswoman at the EEOC said the commission doesn't confirm or deny whether a company is under investigation.
At the time, Morgan Stanley laid off around 1,000 brokers who failed to meet new production hurdles. As brokers gained seniority, they had to generate higher commissions and fees to remain employed.
The practice is common at brokerage firms. A number of them, including Morgan Stanley and Citigroup Inc. unit Smith Barney, ratchet up demands on experienced brokers. For a given production level, newer brokers retain a higher percentage than more experienced brokers of the commissions and fees they generate, particularly those in the low or middle ranges of production.
In Morgan Stanley's case, the firm went so far as to lay off experienced brokers who didn't generate a high enough production.
The EEOC probe isn't the only potential challenge to Morgan Stanley over age discrimination. A federal lawsuit filed by Edward Sullivan, former regional director at the firm's wealth management unit, is pending before the U.S. District Court of the Southern District of New York. Sullivan, a 25-year Morgan veteran in his mid-50s at the time, alleged that he was fired in May 2006 because of his age.
Some lawyers at brokerage firms and consultants say an adverse finding by the EEOC on the Morgan Stanley layoffs could force a rethinking of pay structures linked to years of service.
Lawyers at brokerage firms say it makes sense to require more production from more experienced advisers. "It has nothing to do with age, it has to do with the number of years of production," said a lawyer at a Morgan Stanley competitor. Still, with an adverse EEOC finding, depending on specifics, "you'd have to change the pay structure," the lawyer said.
Garry Stegeland, general counsel and chief compliance officer for Ryan Beck, which has been acquired by Stifel Financial Corp., said requiring more of experienced brokers is "appropriate," but "it's a dangerous course of conduct if you use it as your only" criterion in dismissals.
"If it winds up with a disproportionate number of 'protected class' people being terminated, it is an issue," he said. Employment of people in protected classes is shielded by law to reverse the effects of past discrimination.
To ward off potential lawsuits, said Robert Salwen, a compensation consultant, firms could implement a pay structure based purely on production. Pegging part of compensation on length of service may discourage veteran brokers from resting on their laurels, but "if that's the case, then there may be an age component."
Growing demands on aging brokers will become an issue because, say consultants, the age of the average broker is rising. "It's an aging industry and it's becoming a bigger problem," said Philip Palaveev, a senior consultant on financial advisory at Moss Adams.
Hard data on brokers' demographics at major brokerages are hard to come by. Among independent advisers, a recent survey conducted by Moss Adams found the median age of practice owners is 49 this year, up slightly from 48 in 2004.
When Morgan Stanley conducted its layoffs in 2005, it fired brokers with more than eight years' experience who produced $225,000 or less annually in fees and commissions. Those with five to eight years' experience were axed if they failed to produce $150,000, while those who had been in the industry for one to four years lost their jobs if they failed to produce at least $100,000.
Jim Wiggins, a Morgan Stanley spokesman, said the brokers were terminated on the basis of performance, not age.
Robert Larocca, who represents the brokers who filed the age discrimination complaint at the EEOC in Philadelphia, declined to comment.
If the EEOC probe concludes the brokers' complaint has merit, the commission can pursue the case before a federal court on the plaintiffs' behalf, or simply advise the plaintiffs to pursue a court case on their own. If the investigation proves favorable to Morgan Stanley, the plaintiffs will have a hard time pursuing a federal lawsuit unless the court overturns EEOC's decision.
Jaime Levy Pessin contributed to this report.
A Class Action lawsuit against Morgan Stanley is in the works. Charges of Age Discrimination have been flied with the EEOC on behalf of those fired in August 2005. Contact Hadley Perkins Roeltgen at Kohn, Swift & Graf,PC for more information. 215-238-1700 If you were fired or know other brokers that were fired contact Hadley at:
http://www.kohnswift.com
hroeltgen@kohnswift.com
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