Morgan Stanley outgoing CEO James Gorman on Thursday highlighted why we’re staying in the bank stock. During his CNBC exit interview , Gorman forecasted a better environment for Morgan Stanley’s crucial dealmaking business. The long-time chief also praised incoming CEO Ted Pick and outlined succession plans. Gorman has led Morgan Stanley through tumultuous times during his tenure. He took over as CEO in the aftermath of the Great Financial Crisis and recently steered the company through a mini-banking crisis that was touched off by the March collapse of Silicon Valley Bank. After more than 14 years as CEO, Gorman looks like he’s leaving Pick a Morgan Stanley on the upswing. MS YTD mountain Morgan Stanley (MS) year-to-date performance The stock, too. As the broader market melts up into year-end, the stock has gotten back some of its mojo — gaining 17% in the past month alone, outperforming the S & P 500 ‘s 4% increase over the same period. However, Morgan Stanley shares are only up 8% year to date, far underperforming the market. To be sure, bank stocks overall have been struggling to recover after the SVB failure. Remember, before SVB, Morgan Stanley went to a 52-week high of nearly $101 in February. The stock has been making a run back toward those highs, trading around $92 on Thursday. Here are two key takeaways from Gorman’s interview that speak to the future of the bank and the opportunities that lie ahead for the stock. Investment banking Gorman predicted a pickup in deal-making, and the Club is optimistic about any signs that point to a boost in Morgan Stanley’s investment banking business, which has been dormant for years due to a dearth of mergers and acquisitions and initial public offering softness. However, a slew of recent M & A activity and IPOs shows signs that sentiment could be improving. During Tuesday’s December Monthly Meeting , Jim Cramer said he thought Morgan Stanley’s third quarter — the one that sent the stock spiraling in October — wasn’t nearly as bad as most investors thought. We made a small buy that day because we felt the selloff was overdone. But Jim acknowledged the results should have been better, especially on the asset-gathering side. Investors are now starting to remember how strong Morgan Stanley’s M & A and underwriting franchises are. Jim thinks that this only strengthens our investment case for Morgan Stanley, which has been pivoting toward the more reliable revenue streams of wealth management to smooth out earnings from the more episodic investment banking. We’re hopeful that once the macro environment improves and the Federal Reserve ends its interest rate hiking cycle (which increasingly appears to be the case), investing banking and wealth management can both grow at the same time. That’s why Morgan Stanley has been one of our favorite ideas for a more dovish Fed. Gorman said in October that “the minute you see the Fed indicate they’ve stopped raising rates, the M & A and underwriting calendar will explode because there is enormous pent-up activity.” We’re still early in this prediction, but it already looks like a prescient call. CEO succession Pick, current Morgan Stanley co-president and 33-year capital markets veteran, will step into the CEO role at the start of 2024. Jim previously described Pick as a great choice for the job, saying his appointment “removes an uncertainty” for the bank amid an uncertain macro environment. The 65-year-old Gorman will stay on as executive chairman until the end of next year. Meanwhile, the other two contenders for the top role, Andy Saperstein and Dan Simkowitz, will become co-presidents and receive hefty $20 million compensation packages — likely an effort to keep them from leaving. So far, Morgan Stanley has been able to avoid a dramatic leadership shakeup, ensuring in-house continuity. Pick is “tremendously wicked smart,” Gorman said. “He has intrinsic qualities of what it’s going to take to lead this institution.” For his part, The 50-something Pick said he’s following a similar playbook to Gorman. “The business strategy is sound. There will be no change in strategy,” he told CNBC in a previous interview . “We know what we are after 15 years of transformation under James’ extraordinary guidance.” (Jim Cramer’s Charitable Trust is long MS . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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James Gorman, Morgan Stanley CEO, July 18, 2023.
CNBC
Morgan Stanley outgoing CEO James Gorman on Thursday highlighted why we’re staying in the bank stock.