When Richard Portogallo left his job running Morgan Stanley’s illustrious prime brokerage business in January 2006 to head up the bank’s U.S. equities division, his promotion signaled how important hedge funds had become to banks. During his almost 20 years in prime brokerage, the Brooklyn native had established relationships with virtually every large hedge fund firm in the world — just the sort of clients that banks were hoping to win more business from.

Over the next 18 months, Portogallo refocused his new division on client service while embracing the changing technological landscape of equities trading, including such innovations as direct market access. Then the financial crisis hit, culminating in the dramatic September 2008 collapse of investment bank Lehman Brothers Holdings, which sparked fears that the highly leveraged Morgan Stanley would be next to fail. Portogallo tells Institutional Investor Staff Writer Imogen Rose-Smith what Morgan learned from last year’s crisis, and how the cataclysmic events of 2008 will reshape the financial services industry’s future. ....

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