Gorman gamble
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There’s growing fear among the ranks at Morgan Stanley that their new boss might be inclined to dial down the bank’s risk taking.
Risk is a sensitive subject at Morgan, where insiders and investors alike are eager for signs of change at the top. In a little more than two months, James Gorman will succeed John Mack as head of the Street icon.
At one time, archrival Goldman Sachs and Morgan were the one-two of risk investment. But throughout the financial crisis, the Mack-run firm has found itself on the wrong side of bets involving risk, putting itself in Goldman’s shadow.
What’s more, the bank took on more risk at the wrong time in the meltdown and booked $3.7 billion in trading losses in the fourth quarter of 2007. Then Goldman added insult to injury to the once-proud firm by doubling down and generating blowout profits.
Now enter Gorman, who currently runs Morgan’s massive brokerage unit and has cut his teeth on Wall Street running wealth-management operations.
According to people familiar with the matter, the Australian-born Gorman has told senior members of Morgan’s sales and trading unit that he views the trading business as critical to the firm’s success and that he’s not looking to put the firm’s growing brokerage force ahead of the core trading and investment banking operations.
He also has signaled that he is looking to regain lost ground against Goldman, these people said.
“The heart, the DNA, the fabric of this place, has always been the institutional-securities business and, frankly, should always be the institutional-securities business,” Gorman is quoted as saying at one sit-down with employees.
However, that message doesn’t appear to be trickling down to the firm’s legion of traders, some of whom wonder if their new captain will sing a different tune once he officially takes over Jan. 1.
“Where [Gorman] stands on risk is the big X factor,” said one trader.
Those who have met or heard from Gorman say those fears are overblown, and add that what the new chief has said so far gives them comfort. One loyalist noted that even the new boss’ name speaks to his suitability: Gorman is an anagram of Morgan.
“We have a number of traders globally and James has held several meetings with all business heads and desk heads and given his views and allowed those individuals to go through Q&As and the feedback has been unequivocally positive,” a senior trader told The Post.
“From where I sit — and I think I’ve got some good visibility — I think we’re in good shape,” the trader said. “Risk taking is going to be a part of [Morgan’s] business.”
There are signs that Morgan is already on the rebound and that the bank will report robust third-quarter numbers when it releases earnings next Monday. Some analysts expect the firm to post third-quarter results of about 25 cents to 30 cents a share — driven by the firm’s decision to redouble its efforts in trading and ratchet up risk.
In addition, many Wall Street watchers believe that Gorman is the right man to run Morgan given the banker’s ability to help craft the brokerage joint venture with Citigroup’s Smith Barney unit and his success as a top exec at Merrill Lynch.