James Gorman's exit unleashes battle to be new CEO of Morgan Stanley
James Gorman is leaving Morgan Stanley. After 12 years with the bank, the 64-year-old CEO and former McKinsey & Co. management consultant, said today that he's leaving within 12 months, absent any "major change in the external environment.”
Who will replace him? Gorman declared cryptically that there are three people in the running but neglected to name who. The expectation is that they're: Ted Pick, who runs the institutional securities group (the investment bank), Andy Saperstein, who runs wealth management; and Dan Simkowitz, who runs the investment management business.
If you work for the institutional securities business, it's clear who you'll be backing.
Gorman's exit doesn't necessarily come at a great time for Pick, though. In the first quarter of 2023, revenues and profits in the institutional securities unit fell 11% and 33% respectively, and there's little sign that they're likely to recover this year. In asset management, by comparison, they were down 3% and 34%. And in wealth management, both were up - by 11% and 8%. When Morgan Stanley makes the 3,000 job cuts that it's promised later this quarter, the institutional securities unit is likely to be first in the chopping queue.
Decisions on Gorman's replacement are unlikely to be made on short term considerations, but the mood music isn't playing Pick's tune longer term either. Recent talk at Morgan Stanley has been more about the strategic importance of the wealth and investment management businesses than institutional securities. Speaking during the bank's first quarter investor call, Gorman said he had "no doubt whatsoever" that they bank will be making more acquisitions in the " wealth and asset management space."
Pick, however, has several things in his favor. Most notably, even with profits in his unit down by a third in the first quarter, the institutional securities business generated 62% of Morgan Stanley's profits overall. Institutional securities' profit share was only 48% of the total in 2022, but in 2021 it generated 60% and in the depths of the pandemic in 2020, 67% of Morgan Stanley's profits came from the investment bank.
This is presumably what keeps Pick - who formerly had a reputation for being fun and sweary - in the game. Strategically, Morgan Stanley may not like its investment bank all that much, but it still mostly generates most of the profits. When James Gorman's successor is being chosen, that must surely count for something.
One Morgan Stanley MD said he's for Ted: "He's been the heir apparent for some time now."
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