Can Morgan Stanley pull off a bloodless succession?

Over an Italian dinner at Elio’s on New York’s Upper East Side two years ago, Ted Pick and Andy Saperstein promised each other that a brewing succession battle at Morgan Stanley would not devolve into the kind of back-stabbing common at other banks.

Colleagues for 15 years, they had just been promoted to co-presidents, marking them out as leading contenders to eventually take over one of Wall Street’s biggest jobs from long-serving chief executive James Gorman.

They knew a good relationship was important to their boss — Gorman had warned privately that internal politicking was one sure-fire way to disqualify a candidate from the CEO job. 

And now, after Gorman announced last week that he planned to step down within 12 months, their fraternity will be put to the test as Morgan Stanley’s board tries to pull off a Wall Street rarity: a bloodless succession. 

“[Gorman] mentions it all the time that Wall Street has been absolutely horrific on succession and that he was the one who was going to change that,” said one former Morgan Stanley executive.

Gorman, 64, said at Morgan Stanley’s annual meeting that the bank’s board of directors had identified “three very strong senior internal candidates for consideration as the next CEO”, referring to Pick, Saperstein and Dan Simkowitz, another top executive.

“In terms of who takes over, I don’t envy who has to make that decision,” said Christian Bolu, banking analyst at Autonomous Research. “What you don’t want is for the other person to leave. That would be bad for the stock.”

The three candidates have been at pains to show the world that any ambitions to be chief executive will not spill over into their work. They meet clients together. Pick, Saperstein and Simkowitz have also interviewed each other at corporate events.

Morgan Stanley declined to comment. 

Wall Street history is littered with bitter succession battles, including at Goldman Sachs where David Solomon won out over co-president Harvey Schwartz to take over from Lloyd Blankfein in 2018.

Two decades ago, Morgan Stanley was roiled by infighting during the turbulent leadership of Philip Purcell. And early on in Gorman’s tenure as chief, Paul Taubman left the bank following a fractious relationship with his internal rival Colm Kelleher. Taubman now runs boutique investment bank PJT Partners while Kelleher is chair at Swiss lender UBS. 

Gorman has been focused on a smooth leadership transition since he got the job in 2010. Just three weeks into his tenure he presented a succession plan to the board of directors, according to people familiar with the matter.

Whoever wins will face the daunting task of taking over from a widely praised and well-liked leader in Gorman, whose strategy to grow in wealth and asset management has been cheered by investors. Morgan Stanley is now worth more than Goldman, its perennial rival in investment banking and trading. 

“Filling the shoes of James is hard because he’s done so well. He nailed strategy and execution,” said one executive who has worked with all three candidates. 

In his remarks last week, Gorman left some wriggle room around his plans, telling shareholders that his succession would happen so long as economic conditions remained stable. He plans to stay on as executive chair for a period of time after handing over his responsibilities. 

Pick, Saperstein and Simkowitz all have a chance of taking over, but Pick is considered the frontrunner, according to people familiar with the succession process. 

In addition to their co-president titles, Pick is head of Morgan Stanley’s institutional securities division, which houses the investment bank and trading operations, while Saperstein leads wealth management. Simkowitz runs the investment management division and is co-head of strategy along with Pick. 

Pick, 54, and Saperstein, 56, oversee operations that last year generated 90 per cent of Morgan Stanley’s $53.7bn in revenues. 

After graduating from Middlebury College and gaining an MBA from Harvard Business School, Pick started at Morgan Stanley in 1990 as a capital markets investment banker. He moved over to Morgan Stanley’s trading business where he engineered a turnround of the fixed-income division. 

“The decision to reduce costs and staffing in fixed income . . . and then to see it prosper is a feather in anyone’s cap,” said one person with knowledge of the succession planning. 

Pick benefits from his experience running trading and investment banking, the riskiest parts of the bank, which can generate enormous losses when managed poorly. He is viewed as having done a solid job but his record is not without blemishes — Morgan Stanley lost $911mn during the collapse of Archegos, a family office. 

In investment banking, Morgan Stanley has struggled to break JPMorgan Chase and Goldman’s stranglehold as the top fee-earning firms. Pick’s old capital markets team is also at the centre of a US government investigation into its block trading business. The bank said this month it was in talks about settling the case.

Saperstein, who still speaks with the distinctive accent of the Staten Island borough of New York City, has the background most similar to Gorman’s. 

After graduating with degrees from Harvard Law School and the University of Pennsylvania’s Wharton School, Gorman and Saperstein worked together at McKinsey, the consultancy.

Saperstein followed Gorman first to Merrill Lynch and again to Morgan Stanley in 2006, where he became head of US wealth management in 2009.

While he still has only limited experience in Morgan Stanley’s trading business, his assured running of wealth management has pushed him into contention. He has helmed the overall wealth management division since 2019 and it has become a critical driver for Morgan Stanley’s stock, responsible for about 45 per cent of revenues with $4.5tn in client assets. 

Although Saperstein was “much closer to James”, Pick had built up his relationship with Gorman in recent years, according to another executive who has worked with all three of the men. 

Simkowitz, 58, started at Morgan Stanley in 1990, the same year as Pick, and is seen by some as the most polished candidate of the three. 

“He’s somebody I can see in front of a congressional hearing,” said another person who had worked with all three men. 

He joined the bank after graduating from Harvard and gaining an MBA from Columbia University. Like Pick, he has a capital markets background and also worked with the US Treasury and Federal Reserve in the aftermath of the 2008 financial crisis. He had a stint in Asia before returning to New York.

“James obviously rates his intellect very highly, he was a very good capital markets banker,” said one former colleague. 

Simkowitz runs the smallest of Morgan Stanley’s three businesses — investment management makes up about 10 per cent of the bank’s revenues — but the bank’s recent purchase of Eaton Vance has given him a further opportunity to impress.

No matter which of the three does get the job, one glaring issue with Morgan Stanley’s otherwise orderly succession process will remain: the all-male line-up.

The initial slate of four leading candidates, which included Morgan Stanley veteran Jonathan Pruzan before his departure earlier this year, was referred to internally as the “four horsemen”. 

With up-and-coming female executives such as chief financial officer Sharon Yeshaya and Emea head Clare Woodman, it will be up to whoever takes over from Gorman to ensure that the next succession race is more diverse.