Expect further shake-ups at Morgan Stanley's Middle East operations

On the face of it, the resignation of Morgan Stanley's Middle East president, George Makhoul, seems to have happened for relatively benign reasons - a declining fee pool and rumours that he simply wasn't suited to the industry. However, this is the latest in a series of senior departures at the bank, and further shake-ups could be on the cards.

Morgan Stanley beefed up its Middle East presence in the first half of 2008, in anticipation of an explosion of investment banking business. This never happened, and it was forced to lay off 15% of its Dubai team in December last year.

One Morgan Stanley executive told the Financial Times: "You have to be in Dubai, even though the place has imploded and the mega transactions aren't overwhelming. The fees aren't there."

But the bank doesn't appear to be faring too badly considering - it earned $32m in investment banking fees in the first half of 2009, compared to $31m last year, and its market share increased from 6.8% to 9.2%, according to figures from Dealogic.

Nonetheless, it's lost a number of senior people lately - as well as Makhoul, May Nasrallah, its head of investment banking in the region, resigned in July and David Law, who only relocated to Dubai last year to take the post of chairman of investment banking for MENA, left to join Standard Chartered in June.

Makhoul has been replaced by Habib Achkar, who is currently chief executive for Saudi Arabia for Morgan Stanley, while Cyrus Behbehani took over the role of chairman of investment banking and head of coverage for the region, having relocated from London.

Both are formidable dealmakers and Morgan Stanley veterans, and mark a concerted effort shake-up an underperforming Middle East operation, according to a source close to the situation.

"It's an aggressive re-shuffle, and mark my words there are currently more changes taking place," said the source. "These senior departures have had a negative affect on those within key positions lower down the ranks - directors and VP level - and these new appointments are an attempt to restore staff morale and motivate the team once again."

Separately, Ben Grindley, executive director within Morgan Stanley's Dubai capital markets team, is believed to have been relocated for a key position within its UK equity capital markets division, though this has not been confirmed by the bank.