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Debt ceiling, Morgan Stanley CEO succession: Impact on investors

Semafor Finance Reporter Bradley Saacks joins the Live Show to discuss Morgan Stanley CEO James Gorman stepping down from his position within one year, the debt ceiling deal, and how a potential default may impact investors.

Video transcript

- Morgan Stanley's James Gorman is stepping down as CEO within the year. Gorman making the announcement at the bank's annual shareholder meeting this morning. He will stay on as executive chairman for a time after the new CEO takes over. For more on this, we turn to Singapore finance reporter, Bradley Saacks. From one Bradley to another, welcome. Good morning to you. Happy Friday. So let's dive into this. I mean, we didn't expect this. This wasn't on our bingo card when we started off this Friday. So now, the search that ensues. Who do we expect them to ultimately look to within their ranks that they have right now?

BRADLEY SAACKS: Yeah. And it's not totally unexpected. He's made a few comments over the years about-- I think in 2021, he said, I'll be around for maybe another three years, but not five. So while today wasn't necessarily like circled on anyone's calendars the idea that he's stepping down in this time frame isn't completely out of the blue. As far as who comes next, there's some-- I think there's three obvious clear contenders that have been outlined by Morgan Stanley already.

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We have Ted Pick, Andy Saperstein, Daniel Majkowski. My big takeaway always with Morgan Stanley is how they've transformed the business since 2009, 2010, the Smith-Barney acquisition after the financial crisis, turning Wealth Management into a powerhouse, and a very reliable source of revenue. Unlike trading, it's just kind of churns out-- churns out money every year. And from that standpoint, Andy Saperstein runs that unit that made pretty big acquisitions with Eaton Vance and e-trade over the years.

So he's obviously a huge contender, and Ted Pick as well. And you have this trio. And they've kind of been the core three since Jonathan Pruzan left earlier this year.

- And speaking of just executives at the big banks generally, I mean, whenever I hear about something like this happening, my brain turns to Jamie Dimon or even a Brian Moynihan who don't seem to be imminently departing but really are also institutions in and of themselves at this point at these banks. And maybe even more so than a Gorman stepping down will create some pretty big cultural changes. But is that something we should even be watching for at this point?

BRADLEY SAACKS: Any time any long term leader like James Gorman is set to leave, I think that's something you have to keep in mind. I don't think anyone has the reputation like a Jamie Dimon I think we saw that during the regional banking crisis. Morgan Stanley, like I said, has been building up a deep bench for this moment, and Gorman's talked about it where. I don't think the culture of Morgan Stanley is necessarily something that's leaving with Gorman.

That said, all the banks have obviously been building up benches. But Dimon's are always the first thing that comes to mind because of his profile, and he consistently keeps talking about, I'm just going to say five years when someone asked me what I'm going to retire. So I don't think Gorman has the kind of profile globally, nationally beyond people in the finance world like Dimon does, so I can imagine the culture of Morgan Stanley remaining pretty intact with whoever comes next.

- Will there be a hallmark that people look back to Gorman's career and remember most notably?

BRADLEY SAACKS: Yeah. And so like going back I think to the Wealth Management point I made, when we've written about Morgan Stanley the kind of consistent ethos we've heard from our sources from analysts is that it became a little boring but in a good way. It's become a very, very stable earnings machine, thanks to the Wealth Management Investment Management businesses.

It was not necessarily a sexy business 20 years ago, but the Smith-Barney acquisition following the financial crisis has turned the wirehouse business, these advisors talking to high net worth people into just a consistent double digit returns franchise that I think if 20 years ago, you said Morgan Stanley, this well-known investment bank known for deal making was kind of writing writing along with its Wealth Management leading the leading the pack, you'd be surprised. But I think that's going to be his legacy is that he turned this bank into a very stable dominant player in a field where it had always been a player in but has become a leader.

- Switching gears, Brad, I want to turn to what's going on in Washington. And we've been talking about ad nauseum the debt ceiling and the fact that markets as of yet especially equity markets have not really been reacting, what do you think sort of out there amongst regular Americans and investors, they need to be watching when it comes to all of this?

BRADLEY SAACKS: Yeah, we reported earlier this week, and then I was at an investor conference on Wednesday and the lack of concern from players in the stock market is a little shocking. But at a certain point politicians in Washington from a stock investor point of view have been the boy who cried wolf a little too much. We've seen this game play out, and we haven't defaulted yet. So what's the concern now? Why am I going to go running into gold and Bitcoin just yet?

From an individual investor standpoint, it's a very precarious time for anyone investing because these talks seem to be going down to the last minute. But in the intermediate, if you're looking for like a judge of like how scared-- some people, some professional investors are the bond market as we reported earlier this week is terrified. The yields that you can get for something that matures on May 30 or May 30 or the end of May versus June 1 is the gap there is huge.

Because people are concerned that the government's not be able to pay its bills come June 1st. So anyone thinking about investing as individual stock investor across the country has to keep that in mind that while all the professional stock investors may not be very scared of this, the people who are known to be the gloomy set, the bond investors, the credit investors are scared.

- How does how does this impact the US's global standing?

BRADLEY SAACKS: Yeah. This is something that a few sources, the lobbyists, the strategists that work kind of as intermediaries between the banks and the politicians and the investors and the politicians have brought up a lot is that beyond, if we default or not, this doesn't look good from a global standpoint, from a global leader standpoint for the United States. And one point that I heard several people bring up that they're hoping more people from the finance side would start pushing is this affects how we're perceived as far as competing with China.

China wants to move certain trade deals away from the US dollar. This all the circus in D.C. Around the debt ceiling hurts the US dollar's global standing as the reserve currency. If both parties are serious about combating whatever they see as the threat from China, this is a very clear way to strengthen our global position. And I think as one of the few bipartisan issues, that could be a sticking point for some people to get around signing off on a deal that they maybe don't love on other aspects.

- Right. Bradley Saacks breaking down all things debt ceiling, as well as some bank transition to come at the CEO level. Bradley, we appreciate the time this morning. Have a great weekend.

BRADLEY SAACKS: Thank you so much.