Massive internal rift hampers Morgan Stanley

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All is not well in the Morgan Stanley empire. And once again, the source of friction is that time-honored divide pitting bankers against traders. 

Bloomberg offers an arresting inside peek at the power struggle between Colm Kelleher, 54, "a gregarious former fixed-income salesman," and Paul Taubman, 50, "a reserved investment banker." The tension is thick. One executive tried to defuse it with some humor at an event at which the two co-heads of institutional securities were seated side by side.

"How's that co-head thing going?" the speaker taunted. Neither one reacted.

Unfortunately, there have been casualties in this war. The two have been jointly running the Institutional Securities Group since January 2010, and the toll has been palpable to some insiders in the form of "frictional costs or lost business opportunities." The firm has not pushed clients away en masse. It has in fact "generated $8.78 billion of revenue and $1.7 billion of profit in the first half, accounting for 79 percent of the firm's total earnings."

But such banker vs. trader battles never end well. One former senior executive said the rift between the two "affects the firm's ability to deliver a unified vision and coherent strategy, in addition to wasting colleagues' time."

The point of all the media leaking may be to push CEO James Gorman, to do something. But what? He has tried physically separating them, like they were children, and he has separated out operational responsibilities. Ultimately, a more permanent solution may be required. The job of president is now open, and both are candidates. Perhaps the loser may opt to leave.

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