Banks

The story behind Australia's most successful investment banker

Mon 22 May 23, 1:23pm (AEST)
James Gorman Morgan Stanley Thumbnail

Key Points

  • James Gorman will step down as Morgan Stanley's CEO within the next 12 months.
  • Livewire's Hans Lee looks back at his life and career so far.

When James Gorman assumed the role of CEO at Morgan Stanley (NYSE: MS), the investment bank's market cap was US$42 billion. In addition to the burgeoning problems of the Global Financial Crisis, the organisation was also reeling from years of infighting following a bad merger. 

Ten years and a tripling in market capitalisation later, Gorman has decided he's had enough of the day-to-day. 

Over the weekend, 64-year-old Gorman told shareholders he would be stepping down within a year and handing over the reins to a new generation. Three "very strong" candidates have already been earmarked as possible replacements by the Morgan Stanley board itself.

He will remain with the company as executive chairman. And while the new role may not come with the same $31 million salary he's used to, he does leave behind an extremely hard act to follow.

In this wire, I'll take you through the story of Australia's most successful investment banker - a man who started by cleaning dormitory bathrooms and rose to become one of Wall Street's most influential leaders.

James Gorman EDM sized image

Gorman's life in short

Born in suburban Melbourne, Gorman is the sixth of 10 children to an engineer and a nurse. He completed his education at Xavier College, one of Melbourne's most prestigious schools and a known training ground for a litany of politicians, barristers and AFL players. 

From there, he completed a Law and Arts degree at the University of Melbourne. But just because he went to Xavier didn't mean he had an easy ride at law school, as one Wall Street Journal profile discovered:

"To pay for law school in Australia, Gorman cleaned dormitory bathrooms, tended bar and worked Saturdays at a brokerage firm matching trade tickets."

He completed an MBA at Columbia University in the mid-1980s before joining McKinsey & Co. After McKinsey, he spent seven years at Merrill Lynch including as head of its brokerage division before joining Morgan Stanley in 2006 as the COO of the bank's wealth management business. 

Gorman's start at Morgan Stanley 

Gorman's timing to switch firms could not have been more interesting in hindsight. 2006 marked the pointy end of a less-than-favourable marriage for Morgan Stanley and brokerage firm Dean Witter Discover. 

The merger, while viewed as an unprofitable one in business terms, also likely gave rise to the concept of installing Gorman as chief executive. Vice Chairman Rob Kindler explained why in a 2015 piece for Euromoney magazine.

"While there was a lot wrong with the Dean Witter Discover deal, there was an important upside: It gave us a retail presence without which James Gorman would not have joined the firm," Kindler said. 

But even the Dean Witter Discover deal proved to be a shadow of Morgan Stanley's greatest gamble. On the verge of its own collapse following Lehman Brothers' folding, it acquired another broker. This time, it was much larger and the deal was even more gutsy. 

The Smith Barney acquisition (and the others which followed)

In 2009, Morgan Stanley was inches away from collapse - saved only by the US Government and an injection from Japan's MUFG. Its wealth management arm, which Gorman led, was on the brink of collapse - making margins of just 2%. But Gorman told then-CEO John Mack he had an idea on how to save it.

"Gorman’s first order of business was to evaluate whether Morgan Stanley should fix its barely profitable wealth management group or sell it. He told John Mack, then the bank’s chief executive, that the wealth management unit could earn profit margins of 20 percent or more - 10 times its margins at the time."

"His forecast had a caveat, though: to become that profitable, the wealth management business would not only have to become more efficient, but also double its size by buying a large competitor, like Citigroup’s Smith Barney or UBS’s wealth management unit." (Reuters)

Mack caved in and Gorman spearheaded the creation of the world's largest wealth management platform when Morgan Stanley's wealth division bought out Citi's Smith Barney business in a staggered acquisition scenario. 

It all paid off. Margins in the wealth management division increased and Morgan Stanley had bought the rest of Citi's share in the JV by early 2013. The Smith Barney name was dropped and the product is known today as Morgan Stanley Wealth Management (incidentally, its Australian head, Alexandre Ventelon, is a Livewire contributor). Wealth Management also now makes up half of the bank's entire revenue.

Most importantly, the acquisition would also set the tone for Gorman's leadership of the bank which started in January 2010. 

Under Gorman's leadership, the bank made three more important acquisitions:

  • February 2019: Solium Capital for US$900 million

  • February 2020: E*Trade for US$13 billion

  • March 2021: Eaton Vance for US$7 billion

All three are now fully integrated into the Morgan Stanley business and each has played an important role in the bank's rise. 

And as recently as last month, Gorman hadn't ruled out more deals to come. 

"There is no doubt we can, and over the years, we'll do more acquisitions ... It will be in the wealth and asset management space and we constantly keep a list of who's attractive and who would be a good fit," Gorman said on an earnings call last month.

So who wants his job?

Along with Gorman announcing his resignation, he noted the board had found three potential candidates for the top job. The names being circled around in the financial press are:

  • Edward "Ted" Pick, Morgan Stanley's head of institutional securities

  • Andy Saperstein, the current head of Morgan Stanley Wealth Management

  • Dan Simkowitz, head of Morgan Stanley Investment Management

We'll only know the answer in due course.

The analysts' verdict

So how did Gorman do? Well, a look at the stock price alone suggests he's done just fine. But veteran banking analyst Mike Mayo of Wells Fargo might have summed it up best. As early as 2013, Mayo named Morgan Stanley his top pick of the US banks when he was still working at CLSA.

“I think the brokerage business at Morgan Stanley is one of the undiscovered stories in the financial services world," he told Quartz.

This is what Mayo had to say on the news of Gorman's retirement on Bloomberg Television:

"I upgraded the stock when it was $13 a little more than a decade ago. People said what are you doing? James Gorman doesn't know this business! He's a consultant and he is going to fail! And here we are, 12 or 13 years later, saying what a great job he's done. It's been one of the best-performing bank stocks since he took over as CEO," he said.

Written By

Hans Lee

Senior Editor

Hans is one of the Senior Editors at Livewire Markets and Market Index. He created Signal or Noise and leads the team's coverage of the global economy and fixed income markets.

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