July 13, 2024

DealBook: Morgan Stanley’s Next No. 2, the Guessing Game

From left, Colm Kelleher and Paul J. Taubman, the co-presidents of institutional securities; and Gregory Fleming, the president of Morgan Stanley Smith Barney and Morgan Stanley Investment Management.Morgan Stanley, via Bloomberg News; Morgan Stanley; Andrew Harrer/Bloomberg NewsFrom left, Colm Kelleher and Paul J. Taubman, the co-presidents of institutional securities, and Gregory Fleming, the president of Morgan Stanley Smith Barney and Morgan Stanley Investment Management.

Wall Street has a new guessing game: whom will James P. Gorman choose to be his No. 2?

Mr. Gorman, the Australian-born chief executive of Morgan Stanley, is not expected to take over as chairman until early next year, after John J. Mack steps down.

But inside the investment bank, speculation is already swirling about the next president, a title now also held by Mr. Gorman. It is a crucial position, and the person filling it is usually seen as the heir apparent to the top spot.

While there are several long shots, the odds favor three senior executives. Insiders are betting on the co-presidents of institutional securities, Colm Kelleher and Paul J. Taubman, as well as Gregory J. Fleming, the president of Morgan Stanley Smith Barney and Morgan Stanley Investment Management.

They could be waiting a while to get the nod from Mr. Gorman. People close to the chief executive say he has no intention of filling the spot right away and could even wait years.

Mr. Gorman, 52, is still a young chief executive and does not see the need to publicly anoint a second in command, the people say. Choosing one would most likely ruffle the feathers of the executives passed over — a situation Mr. Gorman does not want so early in his tenure. By waiting to pick a president, Mr. Gorman can also monitor the performance of each deputy, keeping them in healthy competition with one another.

“It’s too early to give anyone that type of promotion,” said a UBS stock analyst, William Tanona. “Mr. Gorman needs to get some decent quarters behind him before doing anything like this. The company is going through a transition phase with new people, and there is still a lot to be worked out.”

It is not unusual for a Wall Street chief executive to keep the job empty. Jamie Dimon of JPMorgan Chase and Brian T. Moynihan at Bank of America both have several senior deputies but no president.

But a strong No. 2 can be useful. Goldman Sachs’s president, Gary D. Cohn, is often called to attend investment banking pitches and step in when the firm’s chief executive, Lloyd C. Blankfein, is busy.

The rumor mill at Morgan Stanley is starting in anticipation of a board meeting this month. The directors are scheduled to meet in Japan, where a top shareholder is based, to discuss management changes at the top. The current chairman, Mr. Mack, is widely expected to retire this year. If he does, it will pave the way for Mr. Gorman to step into the role.

Morgan Stanley has a deep bench of executives from which Mr. Gorman can pick a president — when he eventually does. Mr. Taubman and Mr. Kelleher, who have been running institutional securities since late 2009, are natural choices.

The two top executives played crucial roles in guiding the company through the financial crisis. Mr. Taubman, 50, helped secure a lifeline from the Japanese bank Mitsubishi in 2008 shortly after Lehman Brothers collapsed, and he is now focused on investment banking. Mr. Kelleher, 54, was Morgan Stanley’s chief financial officer during the rocky period. He is now charged with turning around sales and trading, a crucial unit that has not fully recovered from the depths of the disaster.

Both have long histories at Morgan Stanley, too. Mr. Taubman, who has been with the firm for 29 years, is one of the largest individual shareholders, with almost 1.1 million shares, valued at roughly $25 million. Mr. Kelleher, an outgoing Irishman who has eight siblings, is an accountant by trade, having worked at Arthur Andersen before joining Morgan Stanley in 1989.

As can be common with co-heads of a division, their professional relationship is tense, according to colleagues who spoke on condition of anonymity because they were not authorized to talk publicly. It is sometimes uncomfortable in meetings with the two executives, since it is readily apparent they do not get along, the colleagues say. Through a spokeswoman for the firm, Mr. Taubman and Mr. Kelleher declined to comment for this article.

The relative newcomer of the group, Mr. Fleming, 48, has known Mr. Gorman since their days working together at Merrill Lynch. Hired in late 2009 to run the firm’s asset management division, he quickly improved the group’s profitability, in part by selling noncore assets and cutting costs. This year, Mr. Gorman added the retail brokerage unit to his duties. Expanding the unit’s lower-risk, fee-based business is a crucial part of the firm’s broader strategy.

There are also dark-horse candidates to consider, like the chief financial officer, Ruth Porat, 53, and Jim Rosenthal, 58, head of corporate strategy. Both are senior executives and members of Mr. Gorman’s inner circle. Mr. Gorman could also look outside to fill out his corporate suite.

As is usually the case in these races, it is too early to call. Of course, that has never stopped Wall Street from talking.

Article source: http://feeds.nytimes.com/click.phdo?i=bc54ff6b5aaf7ef196e6149b7857e9b7

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