Morgan Stanley could be the first of many big banks to tap their more staid businesses for the next generation of leaders, but that might not be enough to contain the culture of risk-taking that creates financial meltdowns.

The real difficulties that arose on Wall Street during the credit crisis came from employees several rungs below the chief executive. And until banks resolve issues such as how to compensate traders and bankers to reward long-term profits, they will not be able to shake the boom-and-bust cycle, experts said.

For now, appointing new chief executives seems to be the order of the day. At Morgan Stanley, it is out with John Mack, a former trader, and in with James Gorman, who heads the more stable retail brokerage business.

And regulators are pressing for Citigroup to kick out Vikram Pandit, who also has a trading background, and install a CEO with retail banking experience, published reports have said. Pandit has a reputation for being methodical, but the meltdown has also claimed the scalps of swashbuckling CEOs such as Bear Stearns' Jimmy Cayne and Lehman Brothers Dick Fuld -- nicknamed the Gorilla.

There's no doubt that the days of the risk-taking trader CEO are over for the time being. Boards are looking for a lower risk profile now, said Michael Holland, president of money manager Holland & Co in New York.

But history has shown that even CEOs picked for their conservative backgrounds can lose a lot of money. Take Charles Prince. He was selected to run Citigroup in part because his legal background was seen as crucial to helping the bank mend its relationship with regulators.

Or Stan O'Neal, who headed up Merrill Lynch's brokerage business before he ran the entire company. Prince and O'Neal both managed to rack up billions of dollars of writedowns on bad securities before being shown the door in late 2007.

The real problems at Wall Street firms run deeper than their leadership, said Karen Ho, an anthropologist at University of Minnesota who has studied Wall Street culture.

One key reason for the crisis was compensation practices. Traders and bankers are incentivized to perform as well as possible during a single calendar year and not worry about what happens to their trades or deals after that.

More generally, there is a short-term mentality on Wall Street that focuses on how markets are performing moment-to- moment rather than whether things are working well long-term.

Wall Street culture will not change just from this crisis. It did not change from the mid-1990s through now, even after suffering from many crises, Ho said.


CEOs who are not intimately familiar with the securities business could be just as likely to stumble as those who come from the trading side.

Analyst Brad Hintz, a former Morgan Stanley treasurer, called Gorman's lack of experience in investment banking or sales and trading potentially troubling.

Phil Purcell, the former CEO who was eventually ousted in a coup that enthroned Mack similarly lacked an investment banking background, Hintz added.

At an employee meeting on Friday, Gorman -- in an apparent bid to quell any internal concern about Mack's departure leading to a strategy change -- insisted that he, too, embraced the trading side of the business.

The heart, the DNA, the fabric of this place has always been the institutional securities business and frankly should always be the institutional securities business, he told employees.

Generally on Wall Street, the businesses that earn the most money at any given time tend to spawn the next generation of chief executives, said James Ellman, president of Seacliff Capital in San Francisco, a hedge fund that focuses on financial firms.

Wall Street has a relatively short-term memory. The people that bring home the bacon tend to gain the power, Ellman added.

(Reporting by Dan Wilchins and Steve Eder; editing by Andre Grenon)