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WHEN JAMES GORMAN took the helm of Morgan Stanley it was barely afloat. His tenure because the financial institution’s chief govt started on January 1st 2010, within the enamel of the worldwide monetary disaster. After the failure of Lehman Brothers, in 2008, concern had unfold that different dominoes would quickly topple. Morgan Stanley appeared a possible candidate. Hank Paulson, then treasury secretary, is rumoured to have provided it as much as JPMorgan Chase totally free (Jamie Dimon, JPMorgan’s boss, apparently declined). The agency then took a authorities bailout. In 2009 its return on fairness, a benchmark measure of profitability, was simply 4%.
Fourteen years later Mr Gorman has handed the wheel of a far finer vessel to Ted Decide, the previous head of its investment-banking and buying and selling arms. “We had our second earlier than the abyss,” stated Mr Decide on January sixteenth, throughout his first earnings name in cost. “We’re decided by no means to face something like these days once more.”
Mr Decide described Morgan Stanley’s progress after 2009 as a “basic ‘self-help’ story”. It began out as a extremely leveraged, risky outfit specialising in buying and selling and funding banking. Within the years because it has reworked itself into Wall Avenue’s pre-eminent wealth supervisor, by way of a sequence of well-chosen offers.
Mr Gorman has typically described this technique as constructing a “ballast” to steadiness the “engine room” of the standard investment-banking enterprise. He began by scooping up Smith Barney, a wealth-management enterprise, from Citigroup for a track through the monetary disaster. In 2019 a small stock-plan administration firm adopted. Then in 2020 Mr Gormon pulled off two mammoth offers in simply three months, buying E*TRADE, a brokerage agency, and Eaton Vance, an asset supervisor.
The result’s that Morgan Stanley is sitting on $6.6trn in consumer property, the most important pot of wealth on the earth. It now earns virtually two-thirds of its earnings from that pot, and has posted a juicy return on fairness, averaging 16% a 12 months since 2020. Different world banks at the moment are aping its push into wealth administration. Analysts making the bull case for UBS’s latest acquisition of Credit score Suisse, a agency with a big wealth enterprise that bumped into bother in 2023, level to Morgan Stanley for example of how such a merger can repay.
May the agency turn into a sufferer of its personal success? On the earnings name on January sixteenth one analyst requested Mr Decide if he anticipated fiercer competitors in wealth administration, as different banks try to beef up their operations. Margins in Morgan Stanley’s wealth-management enterprise in 2023 had been round 25%, a drop from the 30% or so the agency has posted in prior years. The share value fell by some 4.5% within the hours following the earnings name.
Mr Decide himself appears set to remain the course. Those that have labored with him describe a disciplined, straight-talking, no nonsense sort of man—a gradual pair of fingers who can hold issues crusing easily. “There could have been a change in management,” he advised buyers, “however there has not been a change in technique.”
He didn’t rule out that Morgan Stanley would possibly develop by way of acquisitions, both. “We’ve got made 5 completely different acquisitions. The view inside the home is: that’s good for now.” But when alternatives come up, particularly exterior America the place the agency has decrease market share, “we might staple them on,” he stated.
In an indication of how far Morgan Stanley has shifted from its previous identification, Mr Decide added that he thinks the “ballast” and “engine room” analogy Mr Gorman favoured would possibly want updating. “At one level we referred to as the wealth and funding administration enterprise ‘the ballast’, which was the suitable phrase as a result of we needed to convey stability,” he stated. However now he thinks “it’s really the engine for future Morgan Stanley development.” ■
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