Morgan Stanley: Pick of the bunch will garner no low-hanging fruit

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

US banks are hardly providing best-in-class examples of succession planning. Wells Fargo cycled through three chief executives in three years. Goldman Sachs has floundered under David Solomon. Over at Citigroup, Jane Fraser is struggling to convince sceptics.

Against this backdrop, news that Morgan Stanley has appointed Ted Pick as its new chief executive is refreshing for its lack of boardroom drama.

Pick, a 33-year Morgan Stanley veteran who runs investment banking and trading, has those most cliched of appendages, a safe pair of hands. He is expected to press on with the strategy of outgoing boss James Gorman at the $120bn investment banking and asset management group. This has focused on growth in wealth and asset management.

Under Gorman’s 13-year tenure, revenue has more than doubled to nearly $54bn last year. Net income has grown more than 700 per cent to $11bn. Return on average tangible common equity, which came in at 15.3 per cent last year, was second only to JPMorgan among the big Wall Street banks.

Morgan Stanley’s market capitalisation has surpassed that of Goldman, its crosstown rival in investment banking and trading. The stock also commands a 38 per cent premium over Goldman on a price to book value basis.

It will be well-nigh impossible for Pick to engineer an improvement quite as impressive. Gorman took over Morgan Stanley in 2010 in the wake of the Great Financial Crisis.

Pick will struggle to deliver the type of outsized gains seen under his predecessor. The slump in dealmaking and the slowdown in growth in the wealth management business add to the challenge. Morgan Stanley’s long-term target — a 20 per cent return on tangible equity — will be hard to hit.

The other leading contenders were wealth management head Andy Saperstein and asset management boss Dan Simkowitz. They say they will stay on to help their pal Pick. That sounds more like Sesame Street that Wall Street. But exceptionalism in labour relations is to be applauded, given the alternatives.