Category: Morgan Stanley

Morgan Stanley (NYSE:MS) CEO James Gorman said on Friday he plans to step down as CEO this year.

The bank’s board has narrowed its CEO search to three “very strong” internal candidates, Gorman said.

Morgan Stanley’s CEO candidates are the men leading the bank’s three main businesses: Ted Pick, Andy Saperstein and Dan Simkowitz, according to people with knowledge of the matter, per CNBC.

Gorman will still take on the executive chairman role “for a period of time” after stepping down as CEO, he said.

“The specific timing of the CEO transition has not been determined, but it is the board’s and my expectation that it will occur at some point in the next 12 months,” Gorman said.

“That is the current expectation in the absence of a major change in the external environment,” he continued.

Morgan Stanley’s CEO’s resignation comes after several banks have begun to experience turmoil in the banking sector.

After the collapse of Silicon Valley Bank and Signature Bank in March and First Republic Bank in April, a study on the fragility of the U.S. banking system found that 183 more banks are at risk of failure even if only half their uninsured depositors—those with deposits greater than $250,000—decide to withdraw their funds, USA Today reported. 

“If a ‘confidence crisis’ can happen to First Republic, it can happen to any bank in this country,” says Jake Dollarhide, Chief Executive Officer of Longbow Asset Management.

A run on these banks could pose a risk to even insured depositors—those with $250,000 or less in the bank—as the FDIC’s deposit insurance fund starts incurring losses, the economists wrote. 

Morgan Stanley Mentioned in List of Banks at Risk

Banks that have the most risk right now are:

• First Republic Bank
• Huntington Bancshares
• KeyCorp
• Comerica
• Truist Financial
• Cullen/Frost Bankers
• Zions Bancorporation

The “Top 5” also have a big risk factor, though many have deemed these banks as “too big to fail”.

• Bank of America
• Citigroup
• JPMorgan Chase
• Morgan Stanley
• Wells Fargo

Is people’s money safe in banks today?

“It’s not a problem unless your depositors decide it’s a problem and ask you for their money back, which is sort of what happened with Silicon Valley Bank,” said David Sacco, a finance professor at the University of New Haven. 

A case study of the recently failed Silicon Valley Bank (SVB) says that 10 percent of banks have larger unrecognized losses than those at SVB.

Nor was SVB the worst capitalized bank, with 10 percent of banks having lower capitalization than SVB.

“On the other hand, SVB had a disproportional share of uninsured funding: only 1 percent of banks had higher uninsured leverage.

Combined, losses and uninsured leverage provide incentives for an SVB uninsured depositor run.

We compute similar incentives for the sample of all U.S. banks.

Even if only half of uninsured depositors decide to withdraw, almost 190 banks with assets of $300 billion are at a potential risk of impairment, meaning that the mark-to-market value of their remaining assets after these withdrawals will be insufficient to repay all insured deposits,” said a report by SSRN.

Related: Wells Fargo Agrees to Pay $1 Billion in New Lawsuit

Yellen Tells Bank CEOs More Mergers May Be Necessary

During Thursday’s meeting with the CEOs of large banks, Treasury Secretary Janet Yellen told executives that more bank mergers may be necessary as the industry continues to navigate through a crisis, two people familiar with the matter told CNN.

The worst banking crisis since 2008, marked by a series of bank failures, plunging stock prices and concern about the business model of regional and mid-size banks, has forced a regulatory rethink.

Regulators, of course, prefer corporate mergers where strong banks take over weaker ones over destabilizing bank failures.

“Consolidation is inevitable,” said Ed Mills, Washington policy analyst at Raymond James.

Earlier this month, regulators allowed JPMorgan Chase, the nation’s largest bank, to buy most of First Republic, the second-largest bank to fail in US history.

“What happened here is because a bank was under-regulated and started to fail, the federal government has helped JPMorgan Chase get even bigger,” Massachusetts Democratic Sen. Elizabeth Warren told CNN.

“It may look good today while everything’s flying high, but ultimately if one of those giant banks, JPMorgan Chase, starts to stumble, the American taxpayers are the ones who will be on the line.”

“This might be an environment in which we’re going to see more mergers, and you know, that’s something I think the regulators will be open to, if it occurs,” Yellen told Reuters.

Related: Bankers Want an Emergency Ban on Short Selling

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