Key takeaways
- Morgan Stanley CEO James Gorman confirmed at the annual shareholder meeting he was stepping down from the role in the next 12 months
- The bank’s share price dipped 2.5% at the news, which was a surprise
- Ted Pick, Andy Saperstein and Dan Simkowitz are said to be in the running for the top job
There’s been a change in the upper echelons of the US banking world as James Gorman, CEO of Morgan Stanley and a veteran of the 2008 financial banking crisis, has announced he will transition to an executive chairman role in the next year. It’s the end of an era for the banking industry, which saw Gorman turn Morgan Stanley from a struggling investment bank to an asset management powerhouse.
The bets are out on who gets to run the bank next, but it’s said there are three contenders in the mix. Wall Street didn’t like the surprise news, with Morgan Stanley stock dipping. Read on to find out what’s gone down and who might be the next top dog at Morgan Stanley.
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What has Morgan Stanley announced?
Morgan Stanley’s CEO, James Gorman, announced at the bank’s annual shareholder meeting that he is stepping down from the position in the next year. He’s been in the role since 2010.
“The specific timing of the CEO transition has not been determined, but it is the board’s and my expectation that it will occur at some point in the next 12 months,” Gorman said. A successor to the role is yet to be announced.
Gorman, who is 64, will transition into the executive chairman role “for a period of time” after giving up the CEO position.
James Gorman’s phenomenal run as CEO
Australian banker James Gorman joined Morgan Stanley from Merrill Lynch in 2006, with previous experience as a lawyer and McKinsey consultant. He became co-president of Morgan Stanley in 2007 and took on the top position in 2010.
Gorman will go down in Wall Street history as one of the savviest bank CEOs. He turned a failing Morgan Stanley, still reeling from the 2008 financial crisis and heavily leaning towards investment banking, into an asset management powerhouse in a decade – an impressive feat by anyone’s standards.
Under Gorman’s leadership, the banking titan leveraged its 2009 acquisition of Smith Barney from Citigroup to deploy thousands of financial advisors and build out its wealth management division.
Morgan Stanley also acquired online trading platform E-Trade and investment firm Eaton Vance in 2020 to beef up its wealth management offering. These strategic takeovers have paid off: wealth management now makes up around half of the bank’s total revenue and Morgan Stanley has a $141 billion market cap.
Gorman also focused on eliminating things that weren’t working for Morgan Stanley in the long run: namely physical commodities and a small advisory business in Europe. The goal was to avoid a similar fate from the 2008 crisis, which Gorman has certainly achieved with the wealth management arm propping up the bank in its latest earnings report.
How did the markets react?
With Gorman being the face of Morgan Stanley for so long and steering the bank from failure to wild success and no official announcement on a successor, it’s only natural that investors are nervous about his exit. Morgan Stanley stock dropped as much as 2.5% on Friday.
In comparison, the Dow Jones US Bank Index dropped 0.82% and the Nasdaq Bank Index closed 1.78% down on Friday. It’s a sign that Wall Street doesn’t like surprises and is uneasy about what might happen next, so let’s look at who’s in the running for the top job at Morgan Stanley.
What Gorman’s successor faces
There are three potential successors being bandied about for the CEO position. Ted Pick runs the capital markets arm and Andy Saperstein oversees the wealth management division; both are co-presidents of the bank. Dan Simkowitz leads the investment management arm and was announced as co-head of strategy in 2021.
Simkowitz runs the smallest division of the three, so it’s likely a race between Pick and Saperstein. Given how crucial the wealth management business has been to Morgan Stanley’s success, the latter might have the edge.
Whoever gets the role faces a similar situation to what Gorman inherited in 2010 – the financial climate has been difficult for a year now, with inflation still sticky, US banks struggling to cope with higher interest rates and talks of a recession still lingering.
The economic environment hasn’t been kind to Morgan Stanley. Its Q1 earnings report reported a 19% drop in quarterly earnings of $3 billion or $1.70 a share. Its revenue hit $14.5 billion, which was up from expectations but still down on 2022’s result. Its investment banking revenue also plunged by 24%.
The wealth management arm has performed well despite this, which is another feather in Saperstein’s cap should he be offered the top role. Morgan Stanley’s Q1 wealth management revenue climbed by 11% year-on-year and grew its net new assets by $110 billion. Net interest income skyrocketed by 40% thanks to higher interest rates.
Another thing to consider is that the bank is much bigger now, thanks to Gorman’s leadership. Morgan Stanley’s share price has tripled in value and now has around $4.5 trillion in client assets, with a goal to eventually hit $10 trillion under management. The new CEO faces a tricky macroeconomic environment and Morgan Stanley has further to fall, should M&A activity continue to languish.
Conversely, Morgan Stanley aims to reach $1 trillion in extra assets under management every three years. It’s a hefty goal that has helped the bank weather the latest financial storm, so it makes sense for the next CEO to continue growing this increasingly vital part of the business to ensure long-term success.
The bottom line
The next CEO of Morgan Stanley has a financial landscape somewhat similar to what Gorman was first handed when he started the job. But the bank is in a better position thanks to building out its asset management arm, so it could simply be a matter of continuing what Gorman started.
Or the next CEO could well be interested in making their mark and forging their own legacy – which could lead Morgan Stanley into some very interesting territory. What’s for certain is that Wall Street will be looking out for news on who gets the job with keen interest.
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