By Tatiana Bautzer, Lananh Nguyen and Saeed Azhar
NEW YORK (Reuters) -Morgan Stanley CEO James Gorman plans to step down over the next year, drawing to a close 13 years at the helm 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.
“Gorman has taken a lot of efforts to bolster the leadership ranks and to train and promote potential successors there,” said John Guarnera, senior corporate analyst at RBC BlueBay Asset Management. “I don’t anticipate any major change in strategic direction, and I would think that the transition would be relatively orderly.”
Morgan Stanley shares were little changed in early trading, down 0.9%. 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.
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.
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.
“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 joked on Friday, showing his trademark dry humor.
“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.
Morgan Stanley’s first-quarter profit beat expectations as rising revenue from wealth management offset declines in investment banking and trading.
“You need to be good at your job to survive as long as he has in his role, which tells you all you need to know really,” Stuart Cole, head macro economist at Equiti Capital in London.
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.
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 eldest 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, Lananh Nguyen, Saeed Azhar; Additional reporting by Vansh Agarwal, Jaiveer Shekhavat, Ankika Biswas; Writing by Elisa Martinuzzi; Editing by Toby Chopra, Editing by Franklin Paul and Nick Zieminski)
