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Building A Retail Bank
Sutton's charge: to identify acquisition targets and set a course for growth, and the field is wide open.
November 18, 2008
Cecelia "Cece" Sutton is at a crossroads between commercial and investment banking.
After 30 years at Wachovia, the last five as the leader of the $765 billion-asset Charlotte company's retail bank, Sutton is to join Morgan Stanley on Jan. 5 as its president of retail banking.
Her charge: to identify acquisition targets and set a course for growth, and the field is wide open. Sutton, who lives in Charlotte, said she is unsure what city she will next call home. It depends on where Morgan Stanley buys.
Cece Sutton
"We are really building this from the ground up," she said in an interview. "Everyone at Morgan Stanley is approaching this effort with a lot of energy. It will certainly be a challenge but one that I believe … could be dynamite."
Though the line between commercial and investment banking has been blurring for years, most often when an executive jumps that gap it is a commercial bank luring the expertise of an investment banker.
This is changing, however, as both Morgan Stanley and Goldman Sachs have converted to bank holding company structures. The rest of the big five investment banks are gone: Bear Stearns failed, Lehman Brothers went bankrupt, and Merrill Lynch has sold itself to Bank of America.
Sutton may have needed a new job at just the time Morgan Stanley needed a banker. Wachovia is to be sold next month to Wells Fargo, and many fellow executives, including Benjamin Jenkins III, who as vice chairman and head of the general bank was her boss, are leaving once the deal closes.
Sutton made it clear she did not want to talk about what happened to Wachovia. "It has been very hard because we care deeply about Wachovia and what we have built," she said. "Wells Fargo is approaching things the right way, and they will make for quite a competitor."
Morgan Stanley's courtship of Sutton was quick. The company converted to a bank holding company in September with the idea of gathering low-cost deposits through a retail banking operation. A Morgan Stanley spokesman said Sutton's name was given to chairman and chief executive John Mack by a mutual acquaintance a few weeks ago. She was hired shortly after a meeting with Mack and co-president James Gorman.
Speaking to a conference a day before her hiring was announced, Gorman said Morgan Stanley was looking to attract "world-class talent" to run its retail banking business, which will leverage its 450 existing branches and force of 8,500 financial advisers. Sutton, 50, is to sit on Morgan Stanley's management committee and will report to Gorman.
Sutton's hiring was well regarded by analysts, though most acknowledged that the veteran executive will have a Herculean task turning a venerable New York investment bank like Morgan Stanley into a retail powerhouse.
"It is a daunting challenge," said Nancy Bush, the president of NAB Research LLC. "I am surprised that she decided to make the leap." In addition to the recession, she said, Morgan Stanley must address "public doubts about its viability," a role that will partially fall on Sutton's shoulders. "The public still identifies them as part of Wall Street and doesn't realize that they are a bank holding company."
Gary Townsend, the chief executive at Hill-Townsend Capital LLC, agreed, saying that building a retail bank from scratch would be similar to reversing the course of an aircraft carrier. "On a scale of one to 10, the degree of difficulty for her would be a 10," he said.
Sutton declined to disclose many details about Morgan Stanley's retail bank, largely because she has not yet joined the company. She agreed, however, that it would make sense for the company to buy a bank large enough to provide geographic diversity. "Due to the current environment in retail banking … that would help considerably," she said.
Sutton gave no indication that a deal is imminent, discussing the effort more in terms of careful preparation. Morgan Stanley is "starting to lay out a really comprehensive strategy, determining first what markets we're going to be in and the value proposition we'll offer."
In the interim, she said, the company has begun tapping in to its existing client base and already has roughly $40 billion in deposits. "I'm guessing that there is additional opportunity there," she said.
Morgan Stanley offers some checking and direct-deposit services, along with secured lending and small-business services. It also has an established wealth management business that could help gain traction in retail banking.
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