The naming last night of Ted Pick as Morgan Stanley’s next chief executive from January 1, 2024, is unlikely to lead to a big shake-up at the firm any time soon. And nor should it: Morgan Stanley has been in many ways a shining example of how to transform a firm whose weaknesses became all too clear during the global financial crisis of 2008.
And Pick himself has been a vital contributor to that transformation: he was an architect of one of the firm’s biggest success stories of recent years – the repositioning of its fixed income division in 2015, which saw costs cut fiercely but ended up with a business that has been more consistently profitable.
Morgan Stanley's current chairman and CEO, James Gorman, will become executive chairman of the firm when Pick takes over as CEO.
Gorman's move is not unexpected: he announced at Morgan Stanley's 2023 annual general meeting that he would be stepping down as CEO within 12 months.
Pick is a meticulous engineer of businesses; he will now have to be the captain. To illustrate his approach to business, he has previously told Euromoney of his three P’s concept – preparation, partnership and passion – and he will need to lean on these more than ever.
No one who has worked closely with him will doubt his commitment to all three, and in particular the last of them.
Through the ranks
Pick has been at Morgan Stanley for 33 years, having joined in 1990. He rose through the ranks of its equity capital markets unit in which role he was instrumental in helping the bank raise capital for itself during the GFC.
He then spent time as head of institutional equities, a business in which Morgan Stanley is behind only Goldman Sachs today. But it is notable that this position represents a fall from the top ranking that Pick had helped build and which the firm maintained for seven years until 2021.
In the first nine months of 2023, equities sales and trading revenues at Goldman were 15% higher than at Morgan Stanley, a gap not seen for 12 years.
In 2015, Pick was appointed as overall head of sales and trading, and it was in this position – together with Sam Kellie-Smith, now chairman of global markets, and former Morgan Stanley president Colm Kelleher – that he tackled the problem of the bank’s struggling fixed income franchise, which needed stability more than anything else.
He brought that through a concerted focus on costs – the bank famously cut about 25% of fixed income staff in late 2015 – as well as reining in the unit’s past tendencies to chase high-risk actions that could turn out well or lead to disaster.
The result was a business that settled into a remarkably consistent pattern of delivering about $5 billion of annual revenues through the 2015 to 2019 period, until the unusual pandemic conditions drove activity higher.
What Pick most obviously lacks is direct experience in wealth management, now the larger piece of Morgan Stanley’s business
What Pick most obviously lacks is direct experience in wealth management, now the larger piece of Morgan Stanley’s business after it took the decision to change its profile in the wake of the global financial crisis, most notably with the landmark acquisition of the Smith Barney brokerage from Citigroup.
In the first nine months of 2023, the firm’s combined wealth and investment management divisions accounted for 56% of Morgan Stanley’s $41 billion of revenues, and 58% of its $9.7 billion pre-tax profit. So far, the firm is continuing to grow its business, but it will face ever more competitive pressure as others seek to build more presence here in pursuit of diversification. Goldman and most recently Citi are examples of that.
And continuing to hold its own in wealth will matter all the more for as long as investment banking industry activity struggles to recover amid the increasing rate environment. The latest quarter has shown some signs of green shoots in areas like equity capital markets and advisory, but overall activity is still languishing.
During the Covid-19 pandemic Morgan Stanley announced and completed the $7 billion acquisition of wealth manager Eaton Vance, a deal that took the firm’s client assets to $5.4 trillion across investment management and wealth management. At its latest third-quarter earnings announcement earlier this month, that total had reached $6.2 trillion.
The replacements
The announcement of Pick as Morgan Stanley’s new chief executive was accompanied by confirmation that Andy Saperstein – who had been co-president of the firm alongside Pick and had been the other leading candidate for the top job – will be head of wealth and investment management, combining oversight of both divisions under one person. Previously Saperstein had just run wealth management while Dan Simkowitz had led investment management.
Simkowitz now assumes the head of institutional securities role that Pick is vacating, and becomes co-president of the firm alongside Saperstein. It is notable that the bank has not chosen to hire a replacement from within the investment banking and markets area. But as an investment banking veteran himself, Simkowitz represents more continuity than might first appear. Having joined Morgan Stanley in 1990, the same year as Pick, he has served as co-head of global capital markets in the past.
Simkowitz was appointed by Gorman in 2015 to run investment management, at the same time as Pick took the sales and trading job. Gorman has long been keen to ensure that those coming up through the ranks gain experience across different aspects of the firm wherever possible, and Simkowitz’s trajectory reflects that.
One conclusion that Pick’s selection as chief executive might hint at is that the long-running regulatory investigation into Morgan Stanley’s equity block trading business might either be close to a conclusion or in any case is expected not to envelop Pick himself in its findings.
