Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Morgan Stanley CEO: We can manage conflicts

March 16, 2012: 11:27 AM ET

Morgan Stanley (MS) chief executive James Gorman isn't worried about banks playing "both sides" of transactions, according to comments made this morning in an interview with Fortune managing editor Andy Serwer.

The issue has gained renewed attention in recent weeks, after a Delaware judge criticized Goldman Sachs (GS) for playing multiple roles in Kinder Morgan's (KMI) proposed $21.1 billion acquisition of El Paso Corporation (EP). Morgan Stanley also advised El Paso on that deal, but was not on Kinder Morgan's payroll.

What follows is the question and answer from this morning's event:

SERWER: I want to ask you generally about investment banks working on both sides of the transaction. Is that something you do at Morgan Stanley? Is that okay?

GORMAN: You know, I can't answer that. What is the transaction? Is it friendly? When I was a consultant, I did some acquisitions and set up some manufacturing plants for two players in the software business that are highly competitive but they wanted a joint… they were happy to have a single person there being a go-to person for the transaction. So, you can't have absolute rules in this. You've got to look at what's in the client's interest. These institutions manage conflicts every day we come to work. We publish research on companies, sometimes when we're issuing securities on their behalf. There is an inherent conflict in that. Our job is to create the right Chinese walls, separate them and manage those conflicts. We have conflict committees, we process all transactions through it, so

Andy, I just can't say 'You can't do it."

The more obvious the conflicts the higher the standard of care. So if you're involved in a transaction where you're representing both parties, or if you have an equity investment for one party and a transaction on behalf of the other, where you could be perceived to have a gain from a certain set of actions, you better make sure you've really vetted that well, and each party understands your role in that and that each party is supportive of that.

Gorman later acknowledged that Morgan Stanley probably was on both sides of a transaction "probably last week somewhere in the world," but that he hasn't heard any criticism from clients.

The Wall Street Journal today reported that several banks, including Goldman Sachs, are reviewing their conflict policies for M&A bankers. Morgan Stanley was not among those named.

Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com

Join the Conversation
About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

Email a Tip | @danprimack | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.