Facebook IPO

The banks still compete in almost all of their businesses, whether it’s to win an initial public offering from a tech company, woo a hedge fund to their prime brokerage, or outbid the other on an oil trade. There’s plenty of sniping, too.

When Facebook Inc.’s Morgan Stanley-led 2012 IPO went poorly -- marred by a delayed opening and a 31 percent share price drop in the first three weeks of trading -- some Goldman Sachs bankers whispered that Morgan Stanley would lose customers. Some Morgan Stanley bankers countered that Goldman Sachs, which also worked on the deal, backed away from Facebook when things went south.

Even in businesses where they overlap and compete, the firms have taken different paths. Goldman Sachs remains committed to its commodities division despite regulatory scrutiny, while Morgan Stanley has made an effort to sell oil and gas units. Morgan Stanley sought to cut the amount of capital needed in its rates-trading business, and last year reduced the notional amount of related derivatives by almost one-fifth, to $31 trillion. Goldman Sachs, which is bigger in rates, increased the notional value of those derivatives by $3 trillion to $47 trillion.

Hatfields, McCoys

Last year, Blankfein found himself onstage addressing an unusual audience: Morgan Stanley brokers. Goldman Sachs was pitching a new fund that invested in master limited partnerships, tax-exempt companies that own energy assets such as pipelines. Morgan Stanley was leading the syndicate handling the roadshow. Greg Fleming, president of Morgan Stanley’s wealth management division, was interviewing Blankfein to show that the fund was the right product for clients.

“I’ve been at the firm long enough to remember the days when Morgan Stanley and Goldman Sachs were the Hatfields and McCoys, and you’d never think of them cooperating on anything,” says Timothy O’Neill, co-head of investment management at Goldman Sachs. “But we’re great partners in wealth management now.”

The banks’ strategies are reflections of men with different personalities, philosophies, and histories. Gorman went to a Catholic boarding school in Melbourne. Blankfein grew up in a Jewish neighborhood in Brooklyn and attended a public high school where violence sometimes forced him to stay on the bus until it looped back home.

Strategic Roles

Gorman always held strategic roles, advising Merrill Lynch & Co. as a McKinsey consultant before jumping to the Wall Street firm as head of marketing. Blankfein was a currency salesman in the middle of the trading floor and later ran his own book to gain the respect of the traders he oversaw.

Blankfein rose to power in part because of the fixed-income trading profits in the years before the financial crisis. Gorman’s ascension was aided by losses on bond-trading desks when markets collapsed in 2008.

Gorman’s strategy is driven by a belief that the success of all businesses ultimately comes down to execution. He’s a disciple of stated goals, strategic updates, and marked-to-market checklists. He writes his firm’s results by hand every night at his Upper East Side home and keeps a list of 10 priorities in a clear folder on his desk at work, checking them off in red ink as they’re accomplished. He asks deputies if new ideas fit with the firm’s mission statement and doesn’t hide it if he disagrees, colleagues say. He takes time making decisions, but once he puts someone in place, he rarely micromanages.

Gorman’s Priorities

“Each year I try to focus on about 10 priorities that I personally will get involved with,” Gorman said after the firm’s annual meeting in May. “The organization is full of very talented people, and it’s going to do just fine with or without me sitting here. So there are certain things I can move the needle on.”

Morgan Stanley has targets for everything -- return on equity, assets under management, risk-weighted assets, compensation ratios, and fee-based flows, to name a few. The bank doesn’t always meet those goals. Still, it has won plaudits from investors. Morgan Stanley traded at a multiple of 20 times its earnings over the 12 months ended in March, the highest of any major U.S. bank.