Morgan Stanley: James Gorman Will Step Down as CEO From a Company He Helped Transform
We are maintaining our $91 fair value estimate for narrow-moat-rated Morgan Stanley MS after James Gorman announced he will be stepping down as CEO in the next year. Gorman created significant value for Morgan Stanley shareholders; he was instrumental in transforming the firm into a more balanced financial institution with significant investment-management operations from an investment bank that was on shaky ground in the global financial crisis. Wealth and asset management have recently contributed about 55% of net revenue compared with closer to 40% before the financial crisis, and these businesses will likely be material drivers of the company’s long-term growth. While Morgan Stanley’s investment-management business has grown as a proportion of net revenue, the investment bank has continued to thrive with high league table rankings for underwriting and merger advisory and growth in trading market share.
A good portion of the strengthening of Morgan Stanley’s investment-management business came from acquisitions, which is why we increased our Morningstar Capital Allocation Rating for the company to Exemplary from Standard several years ago. Acquisitions include Citigroup’s Smith Barney wealth-management business, online brokerage and bank E-Trade, and asset manager Eaton Vance. We believe that these acquisitions were done at reasonable prices and contributed synergies to the Morgan Stanley ecosystem.
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