Tech Takeover? Silicon Valley Is Acquiring Wall Street

These days, what's the difference between tech and finance?

Both monetize effective interpretation of aggregated data. Both hire really smart people to do so. Both are huge producers, purchasers and users of technology.

But one of them is perceived to be in the ascendance and one of them is not.

There was a time in the financialized economy when financial services was considered the place to be. After all, in a world where there was profit to be had by eliminating go-betweens who sucked margin out of the value chain, what could produce juicier returns than having one's thumbs on the direct current of money?

The thing is that money is now mostly an electronic representation of what used to be its physical self. So it stands to reason that being closer to the electronics than to the coins and bills is just another form of disintermediation. The new economy has no time for sentimentality. JL

Tom Braithwaite and Ben McLannahan report in the Financial Times:

The pressure being placed on traditional financial firms is so great that basically the opportunities for top personnel are not on Wall Street any more, but with technology firms who are attempting to take away the financial business from, if you will, the traditional lenders.”
Not long ago being offered the position of Morgan Stanley chief financial officer would have been considered the industry’s poisoned chalice.The company scraped through the financial crisis — some rivals claim it had tipped briefly into insolvency before the Federal Reserve saved the day by unleashing unprecedented liquidity into the financial system.

Even in 2011, its share price halved in a few weeks, the cost to insure its debt against default spiked, and some trading counterparties stopped doing business with the bank amid concerns over its exposure to troubled European lenders.

But Jonathan Pruzan, 46, is succeeding Ruth Porat, 58, as CFO at a more benign time.

Morgan Stanley’s share price has risen 85 per cent in three years. The bank’s credit spreads have tightened so dramatically under James Gorman, chief executive, and Ms Porat — who is moving to become CFO of Google — that the market now believes it is more likely for Goldman Sachs to default on its debt.

If the challenges are fewer it does not necessarily mean it is a fun time to be a bank CFO, with a new level of regulatory scrutiny and rigorous annual stress tests to contend with.
“The key significance of this move is not that it creates a problem for Morgan Stanley or major benefits for Google,” said Dick Bove, analyst at Rafferty Capital Markets.

“For me, it is Wall Street moving to the west coast. It is another indication that the pressure being placed on traditional financial firms is so great that basically the opportunities for top personnel are not on Wall Street any more, but with technology firms who are attempting to take away the financial business from, if you will, the traditional lenders.”
Mr Pruzan, who joined Morgan Stanley in 1994, has spent his career as a banker in the financial institutions group, the division that provides advice to other banks. His elder brother is Robert Pruzan, co-founder of Centerview Partners, the boutique investment bank.

Richard Davis, chief executive of US Bancorp, the fifth-biggest bank in the US with $400bn of assets, has been a client for many years. “In the old days we used to buy banks,” he said with a rueful chuckle. “Jon and Morgan Stanley, but Jon particularly, was our preferred partner.”

As US Bancorp has grown into one of the biggest banks in the US, it has fewer natural targets and has also been affected by the deep freeze in bank M&A caused by a tougher regulatory environment.

But Mr Davis revealed that he had been brought opportunities by Mr Pruzan even in this more difficult climate. “It’s not that we didn’t have conversations,” he said. “But the transactions have been nil. I say that a little disappointedly.”

Minneapolis-based Mr Davis said: “He is a proud New Yorker. He brags about it all the time. He’s a great family man. James [Gorman] and he are a well-matched partnership.”
Jeff Harte, analyst at Sandler O’Neill in Chicago, said that news of Ms Porat’s departure initially came as a surprise, in the context of a “cohesive” management team at the bank. But given the increasing regulatory and compliance demands of the job, flatlining pay on Wall Street, Ms Porat’s roots in California, and the fact that Google is more than five times bigger in market capitalisation, he said “the more I thought about it, the more sense it made”.