Prop Accident?

Two weeks ago, I discussed the risks to prop trading:

Is it likelier that GS and MWD will implode from too much risk taking, leaving the investment banking market wide open to the jumbo commercial-investment banks, or...

that GS and MWD will be fine; the giants will be broken up due to slow-to-no growth and bureaucratic bumbling, leaving GS and MWD comforably perched atop the pyramid?

Then I saw this a week ago (10/5/05):

Morgan Stanley has named three traders to temporarily replace Sutesh Sharma, head of global proprietary trading, who is taking a leave of absence after six months in the job.

In an internal memo Jerker Johansson, head of institutional equities at Morgan Stanley, said: "Sutesh Sharma has informed us of his desire to take a temporary leave of absence through March 2006 in order to spend more time on personal matters."

Until he returns, Andy Pipa will be responsible for North America and Mike Frydman and Lars Lemonius will be co-heads of the European and Asian regions.

Sharma was named head of global proprietary trading in April when Robert Karofsky, the former head of Morgan Stanley's US cash equities business, quit with a team of seven traders to join rival Deutsche Bank.

Obviously, this sudden departure might mean nothing, particularly because it is only for six months. Then again, I also wouldn't be surprised if later on, the change were made permanent. 

Now, let's be fair - I'm speculating wildly here. This is because the first thing that came to mind when I read the excerpt above was:

On a conference call with investors (Aug 14, 2001), Enron President and CEO Jeffrey Skilling announced his immediate resignation, citing personal reasons. To fill the void, and while the firm searched for a permanent replacement, Enron announced that Ken Lay - the company's chairman - would assume Skilling's responsibilities.

I think my reaction is proof that investors (especially paranoids like me) are, post-bubble implosion,  still quick to assume the worst, and that we're sensitive to signs of "bad stuff". Hopefully for MWD, this announcement was nothing, but if it was, the language used is unfortunate.

MWD 3Q earnings were announced on September 12 (the company has a November fiscal year end). If any bad news were related to this departure, we would not know the impact officially until 4Q earnings are announced in mid-December.

Any reader who is familiar with this news and knows it is not an issue, feel free to drop me an email.  - Ed