Morgan Stanley: Morgan Stanley has pulled off a rare feat for an investment bank: a smooth transition of power, something that is a welcome relief after more than a year of nasty surprises on Wall Street. Following months of hints, John Mack has announced that he will step down as chief executive of the Wall Street firm at the end of the year. His successor, co-president and brokerage boss James Gorman, has his work cut out.
For starters, meshing together the firm's retail brokerage with Smith Barney is still in the early stages – and any significant problems would reflect badly on Gorman, who was the driving force behind the tie-up. He also has to convince investors he has a viable plan for the other business that has been under his purview for the past couple of years: asset management. The unit has posted six consecutive quarters of pre-tax losses, largely from private equity investments, and, in the case of its Van Kampen funds, suffered net withdrawals.
Another critical requirement is to bring an end to the strategic yo-yoing at Morgan's investment bank. It lost billions in 2007 on an embarrassingly wrong-footed hedge related to an otherwise smart decision to short subprime mortgages. Then it almost went under in the post-Lehman panic a year ago, prompting spooked executives to dial down the risk-taking Mack had previously encouraged as a way to compete with arch-rival Goldman Sachs.
When the market rebounded faster than they expected, trading results looked particularly anaemic in the first half of the year – even beleaguered Bank of America Merrill Lynch bested them in the second quarter. Hiring hedge fund manager Jack DiMaio to a senior trading job in July hinted at a return of risk appetite, leaving investors uncertain of the unit's direction.
And Gorman has to win the respect of his investment banking colleagues. That's something Philip Purcell - Mack’s predecessor and, like Gorman, a former McKinsey management consultant - spectacularly failed to achieve. Despite Mack's mixed record, having him remain as chairman for a time could help in that regard, assuming the old chief can let go - and Gorman can do without the extra burden of being chairman. But he also needs to set out his own stall. At least he has had plenty of time to steel himself for the task.