Morgan Stanley admits losses while its chief executive is a front runner for CEO at Citigroup and Merrill Lynch

08 November 2007
Two of the biggest losers of the sub prime mortgage crisis in the US could be fighting over the same candidates for their empty chief executive positions.

According to reports, Merrill Lynch and Citigroup, who both ousted their chief executives after being forced to admit massive losses as a result of the credit crunch, are looking at the same shortlist.

John Mack, chief executive of Morgan Stanley, Black Rock fund manager’s chief executive, Larry Fink, John Thain, head of the New York Stock Exchange, Robert Willumstad, chairman of AIG and Josef Ackerman, the head of Deutsche Bank are all thought to be potential candidates for both E. Stanley O'Neals old job at Merrill Lynch and the position vacated by Charles Prince at Citigroup.

But it seems that even these men cannot escape the subprime crisis. Despite being a top choice for both Citibank and Merrill Lynch, it emerged today that Mack’s own position at Morgan Stanley could be unstable following reports it will have to write off billions of dollars to cover its subprime exposure.

In a statement yesterday, the firm confirmed that “net exposure as of October 31, 2007 is $6.0 billion. Net exposures are defined as potential loss to the firm in a 100 percent loss default scenario, with zero recovery.”

The statement also admitted that revenue for the two months up until October 31, 2007 was down by $2.5 billion.

“While these write downs will negatively impact the fourth quarter results in the Firm’s fixed income business,” continued the statement, “Morgan Stanley expects to deliver solid results in each of its other businesses, including Investment Banking, Equities, Global Wealth Management and Asset Management – subject to market conditions through the end of the year.”

Willumstad’s suitability has also been under the spotlight as following reports from of a $2.68 billion after-tax write-down of assets in the third quarter for AIG.

Meanwhile, Citigroup is receiving more bad press as Todd Thomson, the executive who resigned in January, officially to pursue other interests, although it is widely believed he was forced to leave due to his extravagant spending of company money, has accused Prince of being part of a smear campaign against him.

Thomson, who is now the chief executive at investment firm Headwaters Capital, says he was CFO for Citigroup founder and chief executive Sandy Weill for four and a half years, with no complaints, saying “You think I somehow lost my cost-management capabilities? This is insane.”

“There was a very significant rift between me and the now ex-CEO. To be clear, there was nothing I did at the company that was in any way untoward,” he told Reuters.

© Fair Investment Company Ltd