I’ve written about and recommended Morgan Stanley through much of this year. Over the last several months, Goldman Sachs has led, taking risk in trading and reaping profits. On the other hand, Morgan Stanley was more conservative, and ironically, suffered as a result. I was encouraged to hear a month or so ago that the firm was beefing up its trading operations and hiring more traders.
This week, the firm announced that John Mack would be stepping down as CEO, and that James Gorman, the head of Morgan Stanley’s brokerage unit, would take over. The problem here: Gorman was a former McKinsey & Co. consultant and currently manages the retail sales side of the house. He has no investment banking experience. This seems to indicate that the board wants to stay conservative and stay away from the risk that is yielding profits for Goldman Sachs. While selling stocks and bonds to retail investors can be profitable, it’s not as profitable as trading.
Of course, we can’t really know until Mr. Gorman has a little time in his job. Still, this wait and see situation changes my position on Morgan Stanley. I’m long, and it’s not a sell, but with any new money, I think it makes much more sense to toss it toward Goldman Sachs. They’ve proven that they can manage risk and profit in this environment. Mr. Gorman may yet try to follow Goldman’s lead, but if the firm remains conservative, it’s likely to lag the market. So why invest in a maybe when you can invest in the proven performer?
I’m long both Goldman Sachs and Morgan Stanley.
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