RETURN ON NONINVESTMENT AT MORGAN STANLEY

Team A:
Homoud A. AlSemrani

Fahad A. Asiri

Bandar AlHarthy

Alaa D. AlNofaiee

Abdullah Al-Sugair

Mouaffaq M. Hasanin

Return on Noninvestment at Morgan Stanley

Return on Noninvestment at Morgan Stanley
Brief about the case
Brief about the case…

The main areas of business for the firm today are:

• Global Wealth Management

• Institutional Securities

• Investment Management.
The Case problem

The company found itself in the midst of a

management crisis in the late 1990s that saw it
lose a lot of talent and competence and
ultimately saw the firing of its then CEO Philip
Purcell in 2005.
Case Problem Analysis

It's not hard to figure out how big the return is on money you
invest. The tricky part is figuring how much you lose on money
you don't spend.

Measuring return on investment from technology projects is an

uncertain science.

How, then, to determine return on noninvestment?

It's clear that Morgan Stanley didn't do any favors for its retail
brokerage unit—the old Dean Witter—by failing to modernize the
computer systems that support the business
Case Problem Analysis…

CEO John Mack talks about the need to catch up on retail technology and
former brokers trash-talk about the antiquated stuff they left behind.
But how much do outdated applications and poor websites actually
contribute to the weak numbers at the brokerage? At some point,
technology is a cultural issue within a firm, not just a toolkit and a budget
item. The lack of new computers may make people feel that the big bosses
just don't think of them as being that important.
How Company find the solution

There is no simple formula that says an investment of a given amount in retail

systems four years ago would yield a certain result today. But it's clear that not
investing in brokerage technology contributed to Morgan Stanley's woes.
That's why John Mack, having decided that he wants to stay in the brokerage
business, is making technology one of his visible priorities in turning the unit
around.
In October 2005 John Mack hired Eileen Murray as a head of global operations
and technology
Murray has committed in boosting Morgan investment in technology,
By applying a new enterprise application integrated system which will help
brokers to view the clients portfolios, the company also rolled out a new
automated tax-reporting system which will allow reconcile gain and losses and
allow users to download the information from their website to the tax
applications.
In June 2006, Morgan generated second-quarter net income of 1.96 billion and
there retail brokerage division posted 157 million in pretax profit, the largest
profit since the first quarter of 2005
How team is evaluating the solution ?

The company did the right to move the business to the technology
systems that helps them to evaluate their market position,
development, maximizing customer base, and organize the in-
house business. However, we decide that the company is very late
to use the MIS since they started their business in 1935 but they
exist to the technology life just in 2005, which make them facing a
trouble because of the data warehouse aren’t implemented.
Some Information about the Company

J.P. Morgan & Co. logo prior to its merger with Chase
Manhattan Bank in 2000

JPMorgan logo prior to its 2008 rebranding

Some Information about the Company

J.P. Morgan & Co. was a commercial and investment banking institution based in
the United States founded by J. Pierpont Morgan and commonly known as the
House of Morgan or simply Morgan. Today, J.P. Morgan is the investment banking
arm of JPMorgan Chase.
The firm is the direct predecessor of two of the largest banking institutions in the
United States and globally, JPMorgan Chase and Morgan Stanley.
In 2000, J.P. Morgan was acquired by Chase Manhattan Bank to form JPMorgan
Chase & Co., one of the largest global banking institutions. Today, the J.P. Morgan
brand is used to market certain JPMorgan Chase wholesale businesses, including
investment banking, commercial banking and asset management. The J.P. Morgan
branding was revamped in 2008 to return to its more traditional appearance after
several years of depicting the "Chase symbol to the right of a condensed and
modernized "JPMorgan".
Between 1959 and 1989, J.P. Morgan operated as the Morgan Guaranty Trust,
following its merger with the Guaranty Trust Company.
In 2008 JP Morgan was crowned Deal of the Year - Equity Market Deal of the Year
at the 2008 ALB Japan Law Awards
Some Information about the Company

23 Wall Street. Former

headquarters of J.P.
Morgan & Co.

September 16, 1920: a bomb

exploded in front of the
headquarters of J.P. Morgan Inc.
at 23 Wall Street, injuring 400 and
killing 38 people.
History

Early History

23 Wall Street. Former headquarters of J.P. Morgan & Co.

The origins of the firm date back to 1854 when Junius S. Morgan joined a London-based
banking business headed by George Peabody. Over the next ten years, Junius took
control of George Peabody & Co., changing the name to J.S. Morgan & Co. Junius's son,
J. Pierpont Morgan, went to work with his father and would later found what would
become J.P. Morgan & Co.

J.P. Morgan & Co., was founded in New York in 1871 as Drexel, Morgan & Co. by J.
Pierpont Morgan and Philadelphia banker Anthony J. Drexel.[2] The new merchant
banking partnership served initially as an agent for Europeans investing in the United
States.
History…

The House of Morgan

In 1895, Drexel, Morgan & Co. became J.P. Morgan &

Co. It financed the formation of the United States Steel
Corporation, which took over the business of Andrew
Carnegie and others and was the world's first billion-
dollar corporation. In 1895, it supplied the United States
government with $62 million in gold to float a bond
issue and restore the treasury surplus of $100 million. In
1892, the company began to finance the New York, New
Haven and Hartford Railroad and led it through a series
of acquisitions that made it the dominant railroad
transporter in New England.
History…
September 16, 1920: a bomb exploded in front of the headquarters of J.P. Morgan Inc. at
23 Wall Street, injuring 400 and killing 38 people.
Built in 1914, 23 Wall Street was known as "The Corner" and "The House of Morgan," and
for decades the bank's headquarters was the most important address in American finance.
At noon, on September 16, 1920, an anarchist bomb exploded in front of the bank, killing
38 and injuring 400. Shortly before the bomb went off, an unknown person placed a
warning note in a mailbox at the corner of Cedar Street and Broadway. The warning read:
"Remember we will not tolerate any longer. Free the political prisoners or it will be sure
death for all of you. American Anarchists Fighters." While theories abound about who was
behind the Wall Street bombing and why they did it, after twenty years of investigation the
FBI rendered the file inactive in 1940 without ever finding the perpetrators.
In August 1914, Henry P. Davison, a Morgan partner, traveled to the United Kingdom and
made a deal with the Bank of England to make J.P. Morgan & Co. the sole underwriter of
war bonds for the UK and France. The Bank of England became a fiscal agent of J.P.
Morgan & Co., and vice versa. The company also invested in the suppliers of war
equipment to Britain and France, thus profiting from the financing and purchasing
activities of the two European governments.
During the early 1920s, J.P. Morgan & Co. was active in promoting banks in the southern
hemisphere, including the Bank of Central and South America.
History…

Glass-Steagall and Morgan Stanley

In 1933, the provisions of the Glass-Steagall Act forced J.P. Morgan & Co. to
separate its investment banking from its commercial banking operations. J.P.
Morgan & Co. chose to operate as a commercial bank, because after the stock
market crash of 1929, investment banking was in some disrepute and commercial
lending was perceived to be more the profitable and prestigious business.
Additionally, many within J.P. Morgan believed that a change in the political
climate would allow the company to resume its securities businesses but that it
would be nearly impossible to reconstitute the bank if it were disassembled.
In 1935, after being barred from securities business for over a year, the heads of
J.P. Morgan made the decision to spin off its investment banking operations. Two
J.P. Morgan partners, Henry S. Morgan (son of Jack Morgan and grandson of J.
Pierpont Morgan) and Harold Stanley, founded Morgan Stanley on September 16,
1935 with $6.6 million of nonvoting preferred stock from J.P. Morgan partners. At
the beginning, Morgan Stanley's headquarters were at 2 Wall Street, just down the
street from J.P. Morgan, and Morgan Stanley bankers routinely used 23 Wall Street
when closing transactions.
History…

Morgan Guaranty Trust

In the years following the spin-off of Morgan Stanley, the securities
business proved robust, while the parent firm, which incorporated in
1940,[3] was a little sleepy. By the 1950s J.P. Morgan was only a mid-size
bank. In order to bolster its position, in 1959, J.P. Morgan merged with
the Guaranty Trust Company of New York to form the Morgan Guaranty
Trust Company.

The two banks already had numerous relationships between them and
had complementary characteristics as J.P. Morgan brought a prestigious
name and high quality clients and bankers while Guaranty Trust brought
a significant amount of capital. Although Guaranty Trust was nearly four
times the size of J.P. Morgan at the time of the merger in 1959, legacy
J.P. Morgan employees were the primary managers of the newly-formed
Morgan Guaranty Trust and J.P. Morgan was considered the buyer.
History…

Return of J.P. Morgan & Co.

Ten years after the merger, Morgan Guaranty established a bank holding
company called J.P. Morgan & Co. Inc., but continued to operate as Morgan
Guaranty through the 1980s before beginning to migrate back to use of the
J.P. Morgan brand. In 1988, the company once again began operating
exclusively as J.P. Morgan & Co.

Also in the 1980s, J.P. Morgan along with other commercial banks pushed
the envelope of product offerings toward investment banking, beginning
with the issuance of commercial paper. In 1989, the Federal Reserve
permitted J.P. Morgan to be the first commercial bank to underwrite a
corporate debt offering[4] In the 1990s, J.P. Morgan moved quickly to rebuild
its investment banking operations and by the late 1990s would emerge as a
top-five player in securities underwriting.
History…

JPMorgan Chase
By the late 1990s, J.P. Morgan had emerged as a large but not dominant
commercial and investment banking franchise with an attractive brand name
and a strong presence in debt and equity securities underwriting. Beginning in
1998, J.P. Morgan openly discussed the possibility of a merger, and
speculation of a pairing with banks including Goldman Sachs, Chase
Manhattan Bank, Credit Suisse and Deutsche Bank AG were prevalent. Chase
Manhattan had emerged as one of the largest and fastest growing
commercial banks in the United States through a series of mergers over the
previous decade. In 2000 Chase, which was looking for yet another
transformational merger to improve its position in investment banking,
merged with J.P. Morgan to form J.P. Morgan Chase & Co.
The combined JPMorgan Chase would become one of the largest banks both
in the United States and globally offering a full complement of investment
banking, commercial banking, retail banking, asset management, private
banking and private equity businesses.