Wall Street’s real-life “Succession” has ended
One of Wall Street’s most closely watched succession races is over as Ted Pick prepares to become Morgan Stanley’s next chief executive. He will take the baton in January from James Gorman, who since 2010 has transformed the firm from an investment bank into an asset-management behemoth.
The path laid out by Gorman has made Morgan Stanley the envy of the financial world and helped it outpace its longtime rival, Goldman Sachs. Pick will face the challenge of keeping the momentum going as volatile markets weigh down core businesses such as deal making.
Pick won a contest worthy of an HBO drama. Morgan Stanley’s board selected him over Andy Saperstein, who leads wealth management, and Dan Simkowitz, who oversees asset management. Those divisions have both been growing fast.
But Pick, a Morgan Stanley lifer who oversees investment banking and trading, is familiar with the most complex parts of the firm, making him in some ways the safest option. (Morgan Stanley is seeking to keep Saperstein and Simkowitz, making both co-presidents and giving them expanded portfolios.)
Pick says he doesn’t plan to shift from Gorman’s strategy, which had Morgan Stanley increasingly embrace the steadier business of money management over the more profitable but volatile work of investment banking. That approach involved buying businesses such as the online trading platform E-Trade and the asset manager Eaton Vance.
It has paid off handsomely. Morgan Stanley’s shares are up 62 percent over the past five years, and the firm has dodged the troubles that have dogged Goldman, which pursued an ill-fated detour into consumer banking. Commentators have praised Gorman, an Australian former consultant with no background in M.&A. or high-risk trading, lauding his slow-and-steady approach.
But Pick must clear hurdles as well. Morgan Stanley’s investment banking business is lagging Goldman’s and JPMorgan Chase’s. And regulators are investigating the firm over its block-trading business after bankers were accused of tipping off favored clients.
And then there’s the question of what’s next. One possibility that Gorman hinted at last week was international expansion: “I would be very surprised if this firm doesn’t do some transactions in both wealth and asset management over the next three years outside the U.S.,” he said.
Save the date: The DealBook Summit will be on Nov. 29. Among the guests are Vice President Kamala Harris; Bob Iger, the C.E.O. of Disney; and Lina Khan, the F.T.C. chair. You can apply to attend here.
HERE’S WHAT’S HAPPENING
The House finally has a speaker. Representative Mike Johnson, a hard-right lawmaker from Louisiana, won enough support from his fellow Republicans to be elected, ending three weeks of paralysis in the chamber. Johnson is the least-experienced speaker in over a century and must focus on issues including avoiding a government shutdown next month and deciding on foreign aid for Israel and Ukraine.
Economists expect a blowout G.D.P. number on Thursday. They forecast that the third-quarter estimate from the Commerce Department, due at 8:30 a.m. Eastern, will show its fastest pace in two years. That would defy fears of a recession and raise questions about whether the Fed will continue to raise interest rates.
The police in Maine search for an attacker who killed at least seven people. Residents of multiple towns in the southern part of the state, as well as Bates College, were under shelter-in-place orders after fatal shootings at a bar and a bowling alley. The authorities named Robert Card, 40, a “person of interest.”
A breakthrough in the U.A.W. strikes
The union last night reached a tentative deal with Ford on a four-year contract after a weekslong strike that has hit the three big Detroit automakers hard. Some observers called the agreement a “major victory for the union” that could set a new standard for labor negotiations across American industry.
What’s in the deal:
A roughly 25 percent hourly pay increase over four years (the U.A.W. initially demanded a 40 percent raise). Two weeks ago, Ford offered a 23 percent increase.
Cost-of-living wage adjustments, gains on pensions and job security, and the right to strike over plant closures.
Among the unknowns: issues like union representation at Ford’s battery plants, a key negotiating point as the auto giants push further into electric vehicles.
U.A.W. officials and labor experts said that the deal vindicated the union’s bargaining tactic. By striking simultaneously at Detroit’s Big Three — Ford, along with General Motors and Stellantis, Chrysler’s parent — and keeping them guessing about which plants would be affected, workers ensured the companies were constantly off balance.
Investors cheered the breakthrough, too, given the strike’s toll: Emmanuel Rosner, a Deutsche Bank analyst, estimated that the work stoppages had cost the trio about $2.1 billion and wiped billions off their market value in the past month.
Shares in Ford are up in premarket trading. Shares in G.M. and Stellantis have risen, too, in anticipation that they will also quickly reach accords with the union.
The deal isn’t done yet — that is contingent on approval from Ford’s 57,000 union members. (They can go back to work in the meantime.) President Biden, who joined an autoworkers’ picket line last month, praised the preliminary accord as “historic.”
A.I. isn’t enough to reverse the tech slump
Meta reported impressive earnings on Wednesday, driven by healthy ad sales and steep cost cuts. But that doesn’t appear to have lifted investor concerns that artificial intelligence isn’t propelling tech stocks as much as promised.
Nasdaq futures are down 1 percent this morning after the tech-heavy index fell to a five-month low on Wednesday on the back of a steep sell-off in Alphabet. Shares in Google’s parent company shed over $165 billion in market value — its worst one-day drop since March 2020 — after it reported lackluster results in cloud computing, which customers need to power their A.I. initiatives.
Meta offered only a brief respite from the gloom, reporting quarterly profits that more than doubled year-on-year, to $11.6 billion. It also disclosed strong user growth, with Threads, its rival to Elon Musk’s X, now claiming nearly 100 million users.
But its stock is down in premarket trading amid investor fears that the ad business faces a slowdown. “The revenue outlook is uncertain” for next year as the economy teeters, Susan Li, Meta’s C.F.O., told analysts on Wednesday.
And Meta faces more unknowns. The company’s “year of efficiency” appears headed to an end, as it prepares to hire more engineers, particularly those with A.I. expertise. Whether investors will welcome the end of cost-cutting to focus on A.I. is uncertain.
There’s a clearer picture for the company’s Reality Labs division, which focuses on the metaverse. Losses there are expected to carry on into 2024.
Bankman-Fried prepares to take the stand
Sam Bankman-Fried’s criminal fraud trial resumed on Wednesday with his lawyers dropping the bombshell that he would testify in the coming days, a big legal gamble.
Testifying is not uncommon for defendants in white-collar criminal fraud cases. Elizabeth Holmes, founder of the blood-testing start-up Theranos, and Ken Lay and Jeff Skilling, the former heads of Enron, have all taken the stand to defend themselves in recent years. (And on Wednesday, Donald Trump testified in his civil business fraud case in New York about a gag order violation.)
Their testimony didn’t seem to help much. Holmes and Skilling were found guilty and sentenced to prison. Lay was also convicted, but he died before sentencing.
Bankman-Fried has repeatedly turned to the media to tell his side of the story since his arrest last year. But taking the stand and portraying himself as a “visionary genius” could backfire, Renato Mariotti, a partner at Bryan Cave Leighton Paisner and former prosecutor, told DealBook. The prosecution will also be waiting to capitalize on perceived misstatements or inconsistencies in Bankman-Fried’s story, Mariotti added.
In addition to Bankman-Fried, the defense is planning to call three witnesses. One is Joseph Pimbley, a financial services consultant, who is expected to testify about the finances of the crypto exchange FTX and its sister trading firm, Alameda Research. Those businesses, founded by Bankman-Fried, went bust, costing customers and investors billions. Bankman-Fried has pleaded not guilty.
A Bahamian lawyer involved in the case will also testify, as will an expert on the preservation of corporate records. Bankman-Fried is expected to testify after them.
A tricky endeavor for Silver Lake
Shares in the entertainment conglomerate Endeavor shot up as much as 25 percent after hours on Wednesday after its main backer, the private equity titan Silver Lake, said it was exploring a bid to take the company private.
Silver Lake is in prime position to make the move, since it owns 71 percent of the voting stock . But a deal to take full control of Endeavor, the Hollywood powerhouse of Ari Emanuel, may still be tricky.
It’s clear why Endeavor wants to sell: The company has long contended that it’s undervalued by public markets. Despite owning the talent agencies WME and IMG, as well as a controlling stake in TKO, the parent of Ultimate Fighting Championship and World Wrestling Entertainment, Endeavor’s shares are down 35 percent since going public two years ago.
Endeavor can thank a rival for potentially resetting price expectations. The French billionaire François-Henri Pinault last month bought a majority stake in Creative Artists Agency, reportedly at a $7 billion valuation.
Endeavor’s market capitalization is currently $8.5 billion — but nearly $7 billion of that is composed of the stake in TKO, suggesting that investors aren’t assigning much value to the bulk of Endeavor’s business.
Silver Lake will have to navigate questions about conflicts of interest. As both bidder and seller, it will have to prove that the sales process is completely fair. (It and Michael Dell faced lawsuits from minority investors over a similar deal to take Dell private a decade ago.)
Such conflicts are usually handled by a special board committee. But Endeavor is set up as an Up-C, which means that investors including Emanuel own shares in both Endeavor and a parent company. That may make it harder to figure out which shareholders are truly independent for deal approval purposes, making extra scrutiny from the courts likely.
THE SPEED READ
Is Ken Griffin, billionaire financier and Republican megadonor, turning his attention from Ron DeSantis to Nikki Haley? (Insider)
Anthony Welters, a health care executive, forgave a $267,230 loan that he made to Justice Clarence Thomas to buy a luxury motor coach, according to a Senate inquiry, raising questions about ethics and taxes. (NYT)
Best of the rest
We’d like your feedback! Please email thoughts and suggestions to [email protected].