Friday, February 22, 2008

Chief Risk Officer Tom Duala out at Morgan Stanley

(FT) Morgan Stanley has hired Kenneth deRegt, its former head of fixed income, as part of a shake-up of its risk management unit that will see the departure of Tom Daula, its chief risk officer.

Mr deRegt, 52, who left Morgan Stanley in 2002, will join the recently formed office of the chairman where he will advise on risk management, internal controls and strategy.

John Mack, chairman and chief executive, pledged to overhaul the Wall Street bank’s risk management after it was forced to take a $9.4bn writedown on subprime mortgage-related investments.

Morgan Stanley has been reviewing the position of Mr Daula, as reported by the Financial Times in December. It has now been decided that Mr Daula will step down after a successor is appointed.

Some senior executives alleged that Mr Daula was too slow to sound the alarm about the dangers stemming from the bank’s exposure to subprime-related trades. But Mr Daula’s supporters claimed his repeated warnings were ignored.

In a memo to staff, Mr Mack said Mr deRegt would primarily work with Colm Kelleher, chief financial officer, who has been given oversight of risk management.

“Given his extensive fixed-income and capital-markets experience, Ken will be a valuable addition to our senior management team as we look to navigate challenging market conditions and bolster the firm’s risk management function,” Mr Mack said.

Mr deRegt will also work closely with Walid Chammah and James Gorman, Morgan Stanley’s co-presidents, on the use of the bank’s balance sheet and with senior management on strategy and internal controls. Mr deRegt, who will start next week, will join the management committee and report directly to Mr Mack.

Mr deRegt has been a managing director of Aetos Capital, an asset management company, since he left Morgan Stanley. He is also on the board of Morgan Stanley Capital International, the index company, and KKR Financial.

Guy Moszkowski, an analyst at Merrill Lynch, said in a note to investors that Mr Mack believed that to make acceptable returns, Morgan Stanley needed to continue to take risk but be comfort-able managing it.

Mr Moszkowski added that there was “a rapid shift back to a culture of debate, inter-unit questioning of trade strategy and sharp discipline”.

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