Can Morgan Stanley's CEO build a better bank?

Robert Armstrong (0:06)

Pushkin.

Wall Street banks are all singing from the same hymnal. Integration is the order of the day, bringing their various divisions closer and closer together. Can this possibly be a good thing?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from my bedroom on the day the trains weren't running to the office. And coming to me from his bedroom is Josh Franklin, the US banking editor for the FT. Josh, welcome to the show.

Joshua Franklin (0:49)

Thanks very much for having me.

Robert Armstrong (0:50)

Hi, Rob. Every one of these banks has a one bank strategy. It's one Morgan Stanley. It's one BlackRock.

It's Goldman Sachs.

I don't know if it's one for them, but it's something unitary.

And it's just like every single bank, their big strategic priority is integration. Why is this?

Joshua Franklin (1:11)

You know, there are no new strategies on Wall Street, only new CEOs. So just to back up, the reason we're talking about this now is Morgan Stanley has a new CEO, a guy called Ted Pick, took over from James Gorman on January 1st.

And one of the big things that he's been getting across in his first six months or so on the job is that he wants to get Morgan Stanley to really run better together. And he's doing this under the slogan of the integrated firm. He had his first letter to shareholders a few months ago where he used this term about a dozen times.

And this is really one of his big mantras that he's been eager to get across. And I feel like the reason why every bank leader wants to do this is because it just makes so much sense not to at least try, right? All these banks are so big, they have so many interactions with so many clients that they could pitch products to. You're just leaving money on the table if you don't try to make something like this work. But the reason why a company as old as Morgan Stanley has had as many CEOs as it has had is still kind of launching a new initiative to try to do something like this after all this time is because it's really, really hard to do.

Robert Armstrong (2:20)

John Mack, who was the CEO a decade or two ago, was talking about this same thing, wasn't he?

Joshua Franklin (2:27)

No, exactly. All the way back in the 1990s, the slogan for his integration effort was the one firm firm.

So this really is something that's been happening for a very, very long time trying to make this thing work. But if you think about corporations in general, I mean, it's always this kind of wishy-washy thing, especially for reporters, it's very hard to nail down. But culture does matter to an extent. And especially a lot of these Wall Street firms are the combination of multiple companies being stitched together. And Morgan Stanley is a great example of that. I mean, you've got investment banking and trading, but then you also have the old Morgan Stanley Dean Witter, you've got Smith Barney that they bought 15 years ago, you've got E-Trade, you've got Eaton Vance.

It's very, very hard to kind of make all of these things into one company.

Robert Armstrong (3:12)

Let's talk for a second about potential conflicts. So I think of Morgan Stanley most broadly as two basic businesses. There's an investment bank. So they run IPOs and raise money for firms and trade and so forth. And then there's a wealth management business.

Why is it so hard just have the wealth managers manage rich people's money and have the investment bankers do investment banker things and just get on with it? I mean, I know they've done acquisitions over the years and there's different bits and pieces, but what are the kind of practical conflicts you get into?

Joshua Franklin (3:48)

Well, so let's have a basic example. You can keep them pretty separate and let them run on their own, which is fine, but then, let's say you have a rich client, let's say you're Morgan Stanley and you have a rich client who's taking their company public, selling their company to a private equity firm, and Goldman Sachs gets that sell-side mandate or is lead left on the IPO. When Morgan Stanley had such a close relationship with that millionaire, soon to be maybe billionaire, why wouldn't they want to try to do that deal as well? The issue is, if you're the financial advisor for this client, you've known him for decades, do you want to take the risk to put him in the room with one of your investment banking colleagues who maybe is going to make a bad impression, who's maybe going to damage Morgan Stanley in the eyes of the client?