Morgan Stanley's new CEO Ted Pick has 'big shoes to fill' as he faces challenging markets, analyst says

By Steve Gelsi

Morgan Stanley's new chief executive faces asset-management headwinds, a muted investment-banking business and challenges in managing former peers

Ted Pick, Morgan Stanley's incoming chief executive, faces multiple challenges -- including having a tough act to follow in James Gorman -- as one of the largest U.S. banks carries out a closely watched leadership change.

That's one main thought from Wells Fargo analyst Mike Mayo after Morgan Stanley (MS) on Wednesday named Pick, 54, as its next chief executive, succeeding Gorman, who becomes the Wall Street bank's executive chair.

Overall, Pick has "big shoes to fill," Mayo said. Gorman led the bank for 14 years, including through the end stages of the 2007-09 global financial crisis.

To his credit, Pick has managed to show success in bringing the bank's institutional-securities business back to a "strong" top five place after "near failure" during the financial crisis, Mayo said.

Morgan Stanley's stock was up 1.3% on Thursday.

The naming of Pick removes a negative overhang -- uncertainty over future leadership -- for Morgan Stanley's stock. But it doesn't eliminate the difficulties Pick faces at the helm of the bank, which currently commands a market capitalization of $119 billion.

Mayo said Morgan Stanley's new chief executive faces asset-management headwinds, a muted investment-banking business and challenges in managing former peers.

Pick said in an interview with CBNC-TV that he plans no changes in strategy at the firm.

"We know who we are after 15 years of transformation under James's extraordinary guidance," Pick said. "We have a world-class wealth- and asset-management business. We've got a world-class integrated investment bank. And there are so many opportunities to grow both of them globally."

Co-president Andy Saperstein, who was a candidate for the chief executive job, will become the head of wealth and investment management. Another candidate, Dan Simkowitz, will become co-president and the head of institutional securities. The latter is Pick's current job.

Earlier this year, Gorman announced he would be stepping down from the CEO post before the company's 2024 annual general meeting.

Pick is slated to take over the job on Jan. 1, 2024, with Gorman becoming executive chair.

Odeon Capital analyst Dick Bove said in an email to MarketWatch that Pick is the right choice for the job. "The financial markets are moving away from buy-and-hold strategies at big banks to raising and moving money from the huge private pools around the world," Bove said. "That is what Ted Pick does best."

Wall Street analysts will also reset their 2024 profit expectations for Morgan Stanley, in another challenge for Pick, Mayo said.

Combined, these factors "can make for a tricky few quarters," he said. "Yet it also has potential to be a textbook transition."

Questions remain over whether Gorman would try to step in if Morgan Stanley's performance starts to fall short, and whether the new management team may be less quick to make changes with their ex-boss still around.

Other difficulties include decelerated growth in Morgan Stanley's wealth unit and weakness in net interest income in its third quarter, Mayo said.

The bank's investment-management unit "seems like it needs fixing up, especially with a seemingly poorly timed Eaton Vance acquisition,in our view," Mayo said.

In a research note, KBW analyst David Konrad described the selection of Pick as eliminating an overhang for Morgan Stanley's stock.

Konrad said Pick offers "strong risk-management skills and has been more heavily involved with the increased regulatory burden" on the six major U.S. banks that are categorized as global systemically important banks, or G-SIBs.

Pick has also worked with Mitsubishi UFJ Financial Group Inc. (MUFG), which is Morgan Stanley's largest shareholder, on two capital-markets joint ventures.

"A very important part of this transition is to ensure other key and talented executives remain at Morgan Stanley," Konrad said.

On this issue, Gorman said, also in an interview with CNBC-TV, that both Saperstein and Simkowitz would remain at the firm.

"Unfortunately, we can only have one CEO, but they're both going to be co-presidents," Gorman said about Saperstein and Simkowitz. "They're going to work with Ted running the firm. And, yes, they're going to stay. They're committed to Morgan Stanley."

Looking ahead, an overseas acquisition may be in the works, as hinted by Gorman during the bank's third-quarter call with analysts earlier this month.

"If you think of the combination of Middle East, India, Japan kind of offsetting what's gone on in China, and then, strategically, I would be very surprised if this firm doesn't do some transactions in both wealth and asset management over the next three years outside the U.S.," Gorman said. "I think we have a game plan for it. ... The opportunities are clearly there."

-Steve Gelsi

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10-26-23 1514ET

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