The Man Who Rebuilt Morgan Stanley

this is the story of a Wall Street Outsider who took charge of a storied Investment Bank at its most fragile period and turned it into a profit-making machine I like real businesses real clients real revenues real profits James Gorman is the longtime CEO of Morgan Stanley in May 2023 the australia-born Gorman said he plans to retire sometime in the next year in contrast to leaders at other Banks who show no sign of ending their tenures to run a global bank and deal with all the changes that are going on in the world it's important for organizations to refresh Morgan Stanley shareholders were disappointed Stanley so the question now is whether Morgan Stanley's next leader can build on Gorman's turnaround success to understand Gorman's Legacy we need to go back to the dark days of late 2008. how are you feeling how do you think Lehman Brothers had just collapsed under the weight of its own toxic assets and investment Banks became Ground Zero for short sellers the collapse in confidence across the market left Morgan Stanley on life support in desperate need of cash after a run on its prime brokerage which is the unit that serves its hedge funds so where did Morgan Stanley go to get the cash the government The Firm borrowed 10 billion dollars through the troubled asset relief program set up by the U.S treasury Department and many many more billions from the Federal Reserve both Morgan Stanley and its rival Goldman Sachs had to become Traditional Bank holding companies in order to tap the central bank for emergency loans in fact Morgan Stanley ended up borrowing 107 billion dollars from the fed the most of any bank and it got help from foreign investors that same year Japan's largest bank mufg ponied up nine billion dollars that it later turned into a 21 Equity stake in Morgan Stanley after getting the much needed Capital to shore up investor confidence Morgan Stanley's Next Step get its Core Business back on track in early 2010 The Firm promoted Gorman from co-president to CEO James Gorman he doesn't know this business he's not a Trader he's not an investment banker he's a consultant but that ended up being his secret sauce in his former life at McKenzie Gorman helped companies cut costs find rope drivers and create value and that's exactly what he did when he transitioned to Wall Street his first order of business repair and Recovery he changed the firm's Focus leaning into wealth management the business of managing money for the rich to create more steady and predictable Revenue James Gorman had always used this analogy of Morgan Stanley as a ship there are engines those volatile but powerful trading businesses that can gear up quickly to meet the needs of the markets but then there's that traditionally more stable wealth and asset management business that he thinks of as the firm's ballast that steadies the whole ship at the same time he managed expectations pointedly avoiding making Promises of a cheating pre-crisis level returns analysts had pushed him to set the bar higher but he reminded them that his objective was to do well when the markets were good but just as importantly Morgan Stanley would do just fine if the markets were tougher foreign like other Banks Morgan Stanley cut jobs to keep costs under control and Gorman made it clear he was not going to overpay his Bankers even after financial markets recovered what do you say to people who tell you they're unhappy take a hike no I say listen to you you're naive read the newspaper number two if you put your compensation in a one-year context to Define your overall level of Happiness you've got a problem which is much more bigger than the job Gorman also invested in The Firm putting Morgan Stanley on a path for expansion and growth in 2009 it merged its retail brokerage with Smith Barney only to buy the rest of it four years later more recently in 2020 they purchased online broker E-Trade and later that year fund manager Eaton Vance those two deals were the largest takeovers by a U.S Bank since the financial crisis and they catapulted Morgan Stanley into the ranks of the biggest asset managers in the world in time profit margins stabilized validating Gorman's strategy and investors took notice Morgan Stanley stock returned around 300 since Gorman took the helm outperforming other Financial stocks and rival Goldman Sachs leaving Morgan Stanley with the highest valuation of all the big U.S banks and by one measure Gorman with the highest pay among those big Bank CEOs in 2022. that's not to say Gorman's tenure has been free of blemishes there was that 911 million dollar trading loss tied to the implosion of arcagos Capital Management making Morgan Stanley The Biggest Loser of all U.S banks during that Scandal Regulators are also separately looking into Morgan Stanley's role and helping customers like hedge funds buy and sell large blocks of stock without disrupting markets it's known as block trading and Morgan Stanley is in talks to settle those allegations money wins Here's to Us at this point Gorman's last move would be to pull off a bloodless succession which would be some thing of a Wall Street Rarity the three internal candidates are co-president Ted pick he's the head of institutional Securities co-president Andy saperstein he's the head of wealth management and Dan simkowitz the head of investment management notice none of the final contenders are women in fact women only make up one out of four of Morgan Stanley's senior leadership in the U.S whoever the board chooses analysts say the quicker the handoff the better to prevent political infighting that would distract from longer-term goals Gorman has now set out a target of attracting a trillion dollars in net new assets every three years and the overall goal is to get to 10 trillion dollars in client assets but the bigger challenges economic conditions have changed the next CEO skill set must include the ability to deal with liquidity that's likely to be stress and money that will cost more and U.S Regulators are monitoring big companies getting bigger risk management will also matter especially for globally systemic important Banks like Morgan Stanley remember it was also James Gorman's personality he had the Charisma to bring two sides of a bank with very different cultures investment management and trading all together the next person will have to do the same while setting the bar even higher for Morgan Stanley [Music] foreign

Channel: Bloomberg Originals

Views: 36,708

Keywords: News, bloomberg, quicktake, business, bloomberg quicktake, quicktake originals, bloomberg quicktake by bloomberg, documentary, mini documentary, mini doc, doc, us news, world news, finance, science

Id: vhzU0oXhqxw

Length: 6min 32sec (392 seconds)

Published: Thu Aug 10 2023