(Dow Jones) For Morgan Stanley Smith Barney brokers, the abrupt exit of President Charlie Johnston looks like the latest step toward total Morganization.
"He really was in place to help mollify some of the legacy Smith Barney people so they would feel like they had a say at the top," said a broker from Morgan Stanley in the South. "We bought them," the broker said. "The Smith Barney guys think it's a merger, but nobody on the Morgan side thinks it is. We've been tiptoeing around this issue for 18 months."
Morgan Stanley's Chief Executive James Gorman said in a memo Thursday that Johnston, 57, has been replaced by Greg Fleming as president of the brokerage joint venture. Fleming will continue to serve as president of asset management and Johnston has assumed the role of vice chairman of Morgan's brokerage unit.
"It was a surprise," said a broker from the former Smith Barney. "But as Mr. Gorman said in the announcement, Charlie believes it's the right time to make this change."
Johnston is a veteran of Citigroup Inc., which owned Smith Barney and still owns a 49% stake in the joint venture created in 2009. Citi plans to eventually sell that stake to Morgan Stanley, which owns 51%. Morgan Stanley told investors earlier this week it remains committed to the full takeover, but might delay the timing by a year or two.
Brokers said the shift in management is consistent with the joint venture's march toward sole ownership by Morgan Stanley.
With the merger already under way, brokers said, Gorman had tapped Johnston to prop up morale among financial advisors from the former Smith Barney, who in essence were separated from their long-time parent company and are now on their way to becoming de facto employees of Morgan Stanley.
Johnston led the unit with his deputy Andy Saperstein, a Morgan Stanley veteran.
Some brokers say Johnston and Saperstein, working in tandem, effectively kept the peace as the ranks of both brokerage firms--all 18,100 of them--began sharing offices, merging work processes and even at times competing for the same clients. The appointment of Fleming, they say, is a sign Gorman wants a leader without loyalties to either group of brokers.
"When you look at our branch management structure from the division level on down, it's extremely balanced with people from both Morgan Stanley and Smith Barney," said Morgan Stanley spokesman Jim Wiggins. "Greg Fleming, coming from neither side, will be another unifying factor in the culture here."