Morgan Stanley CEO Gorman to hand reins to successor within a year
NEW YORK, May 19 (Reuters) - Morgan Stanley (MS.N) CEO James Gorman plans to step down within a year but stay on as executive chairman, drawing to a close 13 years in the role during which he built the Wall Street firm into a wealth management powerhouse.
Gorman, 64, told shareholders on Friday the bank's board has identified three strong candidates to succeed him, without naming them, and that he will become executive chairman once a new CEO is chosen.
Morgan Stanley co-presidents Ted Pick and Andy Saperstein, and head of investment management Dan Simkowitz, are widely seen as contenders for the top job.
"An issue of paramount importance to shareholders, employees and clients is, of course, succession -- and no, I'm not just talking about the TV series," Gorman said in his trademark dry humor on Friday, while revealing the plan.
"And I definitely have no plans to go out like Logan Roy," he said, referring to the lead character in the HBO television show about the family of a media tycoon. In the show, Roy dies as CEO of the company without having chosen a successor.
While Gorman was often asked about succession in recent years, the announcement on Friday was unexpected and sets up the final stretch of a race among potential candidates. The three most often cited are white men, however, which could renew the debate about diversity on Wall Street.
Gorman's decision also puts a spotlight on some of the other long-serving CEOs at the largest U.S. banks, such as JPMorgan Chase & Co's (JPM.N) Jamie Dimon and Bank of America Corp's (BAC.N) Brian Moynihan.
One senior Morgan Stanley banker said the succession plan and timeline had been well-telegraphed internally, but it was surprising to see that Gorman would stay on as executive chairman, which means he'd be a lot more involved than if he had become a director.
Some analysts praised Gorman's tenure at Morgan Stanley but said although he had built a strong bench of potential successors and the succession is likely to be orderly, investors may be disappointed.
"I expect investors will be disappointed he is leaving and will see him as a hard act to follow," said Stuart Cole, head macro economist at Equiti Capital in London.
Morgan Stanley shares were down 2% in late morning trading.
TRANSFORMING MORGAN STANLEY
Gorman has refocused the Wall Street firm into a more diversified company that is less reliant on what have been its traditional strengths -- trading and investment banking -- since being appointed CEO in 2010. The less volatile business of wealth management accounted for 45% of firm's revenue in the first quarter.
The diversification helped the bank's share price take a lead over its closest rival, Goldman Sachs Group Inc (GS.N), which decided to largely stick to its knitting coming out of the financial crisis of 2008.
"Building out their wealth management division has been a real boon to the company, and they bested Goldman in that practice," said Kim Forrest, chief investment officer of Bokeh Capital Partners.
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Gorman struck major deals including the acquisitions of money manager Eaton Vance, online broker E*Trade, and stock-plan manager Solium Capital.
He was also the key architect behind Morgan Stanley's purchase of Smith Barney, a brokerage and investment adviser that became a cornerstone of the bank's wealth management arm.
Gorman "has done a masterful job of transforming Morgan Stanley into the model that most major banks want to be, with a focus on asset management, financial advisers," said Art Hogan, chief market strategist at B Riley Wealth in Boston.
Still, it has not all been plain sailing for Gorman.
The bank earlier this month said it's in talks to resolve a more than year-long investigation by U.S. regulators into its block trading practices.
Reuters has reported that the U.S. Securities and Exchange Commission has been probing whether financial executives may have broken the rules by tipping off hedge funds ahead of large sales of shares that the bank has managed.
The lender was also caught up in industry probes by the SEC into employee communications on messaging platforms that had not been approved by the company, which resulted in a $200 million fine.
POTENTIAL SUCCESSORS
Among the potential successors, Saperstein, 56, runs "the most prominent business for Morgan Stanley that is key to both the firm's revenue growth rate and returns," KBW analyst David Konrad said in a note on Friday. "This business has improved from a single-digit pre-tax margin to near 30% over the past 13 years."
"Saperstein could be the leading candidate given the growth of wealth, increase in client assets," Mike Mayo, banking analyst at Wells Fargo, wrote in a note.
Yet Pick, 54, co-president and head of the institutional securities group, may be a "slightly more likely choice" because he was "instrumental in turning around" the bank's fixed-income, currencies and commodities business, KBW's Konrad wrote.
Simkowitz, the oldest of the three at 58, is head of investment management at Morgan Stanley and co-head of the firm's strategy and execution.
Reporting by Tatiana Bautzer; Editing by Toby Chopra
Our Standards: The Thomson Reuters Trust Principles.
Source: Reuters
