Changing of the Guard on Wall Street

Wall Street securities firms have a reputation for a fast turnover where staff are lucky to survive for more than a few years before being fired. But there is one area where the big banks usually see little change: their executive suites.

Chief executives in financial services enjoy longer tenures than their counterparts in other industries, according to U.S. outplacement firm Challenger Gray & Christmas. Last year they enjoyed an average term of nearly 11 years, compared with 8.6 years for bosses in other industries.

Alan Greenberg was in charge of Bear Stearns for 15 years between 1978 and 1993 before appointing James Cayne, who has been chief executive for the past 13 years and chairman for the past five. Richard Fuld has been chief executive of Lehman for 13 years.

But in the past 18 months, a batch of new managers has taken over from veterans at Goldman Sachs, Morgan Stanley, Citigroup and JPMorgan Chase. Lloyd Blankfein is ensconced on Goldman's throne after Henry Paulson's departure to the U.S. Treasury; John Mack, who had run Morgan Stanley for years, returned to take over from Philip Purcell, who hung on for eight years after the merger with Dean Witter Discover; Bank One's Jamie Dimon made sure he inherited leadership of the newly merged JPMorgan Chase from William Harrison.

Some European banks with large U.S. operations have also changed recently: Huw Jenkins and Ken Moelis took over as chief executive and president respectively of UBS Americas when John Costas decided to create UBS's Dillon Read Capital Management hedge fund. Brady Dougan took over as head of Credit Suisse's investment bank, formerly known as Credit Suisse First Boston, when Mack and Credit Suisse Chief Executive Oswald Grübel had a falling out over its merger prospects.

The new entrants share a common bond: They are known for their disciplined, hands-on, bottom-line-focused approach to their businesses, perhaps a legacy of their backgrounds in trading and a natural reaction against the expansionary, acquisition-focused policies of many of their predecessors.

This new batch is expected to do - or has done - better than those they succeeded. Richard Bove, who covers bank and brokerage stocks for independent research group Punk Ziegel & Co., said: "They strike me as being extraordinarily competent managers and will have a positive impact on their institutions."

That raises the question of whether, with a new batch of chief executives as well-known and well-respected as their predecessors, longevity is of any benefit in running a securities firm.

For shareholders, the answer would appear to be yes. On July 29, Bove published research tracking the stocks of big banks, brokerages and asset managers this decade. Those with consistent, stable management teams - Lehman Brothers, Bear Stearns and Goldman Sachs - invariably outperformed their rivals.

Taken over six years, Lehman's stock appreciated 142 percent, Bear Stearns jumped 177 percent and Goldman's under Paulson rose 53 percent. Compare those with banks where management has had less time in the job: Merrill Lynch came in with only an 18.5 percent rise, while Morgan Stanley lost 25 percent and Citigroup and JPMorgan both lost 6 percent of their share value.

There could be another link between the best performing banks: Those that undertake the fewest number of acquisitions have the highest share price.

Bear Stearns, which has never completed a large purchase, had the highest stock appreciation over six years, followed by Lehman, which has carried out one. Goldman heads the top three performers with no big acquisitions.

That would appear to make a clear argument for keeping chief executives around as long as possible. But there are disadvantages. Bove said the longer most chief executives sit in their seats, the greater the chance they become intolerant of dissenting views, outlast their enemies or aren't challenged sufficiently on their ideas.

Without the checks and balances of honest advisers, many chief executives make decisions that later prove to be disastrous, Bove said.

Sandy Weill, who ran Citigroup, ushered the bank through several "splashy acquisitions", ending up with a legacy of consistently undervalued stock and regulatory scandals driven by an aggressive corporate culture, he said.

Harrison piled expensive transformational deals on to Chase Manhattan - first JPMorgan, then Hambrecht & Quist and Beacon Group for the investment bank, followed by Bank One.

Weill and Harrison also pushed out powerful number two loyalists who disagreed with their strategies: Weill with Dimon, and Harrison got rid of Geoffrey Boisi.

Expansions, led by imperialist chief executives such as Weill, Harrison, Purcell and David Komansky at Merrill Lynch, may have created the need for more internally focused leaders such as Prince, Dimon, Mack and Komansky's successor, Stan O'Neal.

The latter's jobs are centered around disciplining groups that may have lost focus because of over expansion or because of keeping their eye on external growth. Prince's tenure has been marked by one regulatory settlement after another to address issues under Weill's time, and Dimon's strict control over costs is a reaction to Harrison's free-spending acquisitions, said Bove.

He said: "The people who came after Weill and Harrison could not focus on issues of investment banking or trading, or the next acquisition. They had to focus on getting the companies under control, rebuilding internal morale because people had been laid off and reconnecting with customers because customer service had deteriorated."

In the way Wall Street's markets are cyclical, so is its leadership. That seems to be recognized by those sitting in the top seats. Before Komansky stepped down in 2001, he said why he picked O'Neal: "I see the next 10 years being very different from the past.

"I thought it would take somebody with a different point of view; someone who could look at the business as it will be, as opposed to what it has been. I thought Stan was best suited to that."

O'Neal and the new batch of chief executives, including Dimon and Prince, have one advantage: Bank and brokerage stocks do well, no matter what. Despite the volatility of the markets, money is a commodity that grows faster than any economy in the world and no matter what the increase in supply, the demand for money never declines.

Circumstances may change but the business of moving money never goes out of style.