James Gorman Makes His Mark as a Dealmaker

The two biggest banking deals since the financial crisis were struck within 10 months, and both by Morgan Stanley.

As a result, Chief Executive Officer James Gorman -- the former McKinsey & Co. consultant and wealth-management executive -- emerges as one of the biggest dealmakers of his generation. A week after closing the $13 billion acquisition of E*Trade, he said he’d spend another $7 billion to buy asset-management firm Eaton Vance.

Investors and analysts are not all certain the deal will work out in the end, and some are concerned he may have spent too much.

“We paid full dollar for it, I make no bones about that, but that’s what you have to do if you want to buy high-quality businesses,” Gorman told me in a Bloomberg Television interview. “It’s going to be a terrific deal over the long run. I’m not worried about the financials at all.”

Morgan Stanley’s asset manager will jump past $1.2 trillion in assets, and with $26 billion in revenue for the wealth and asset-management business, Gorman told analysts he believes it will be No. 1 in the world. (By way of comparison, Goldman generated about $14 billion in its comparable unit last year.)

“James Gorman has transformed Morgan Stanley more in 10 years than any other CEO has done,” Davide Serra, the CEO of Algebris Investments who worked at the bank earlier in his career, told me. Serra’s firm is now a shareholder. “History will define this as the key decade for MS,” with less balance-sheet risk and about 60% of its free cash flow from fee income from diversified, stable consumers.

In an interview with my colleague Sridhar Natarajan, Gorman spoke of his plans as CEO: “I definitely won’t carry on for 10 more years,” he said. “There’s a natural transformation some point ahead in a few years. I know my limits.”

What’s clear is that the latest deals have given Gorman’s deputies a lot more responsibility in a short amount of time.

Killer Mike

Rapper Michael Render of Run the Jewels, otherwise known as Killer Mike, is entering the banking industry. With the launch of digital bank Greenwood, he’s aiming to reach Black and Latino communities that many traditional banks have left behind.

“We endured 80 years of Jim Crow, red-lining,” Killer Mike told my colleagues in a Bloomberg Television interview. “In an era when the four largest banks are denying you loans at about 21%, compared to 8% for white people, at a time where many large banks have proven themselves to be untrustworthy, like Wells Fargo was a few years ago,” consumers need a trustworthy bank, he said.

He also pointed to the opportunities of going digital. “As we grow, banking is coming rightly to our telephone. My 13-year-old banks through her phone,” he said. “As they take brick-and-mortar places out of our community, we seem to be lost.” More on Killer Mike’s #BankBlack campaign here, from Lananh Nguyen for Bloomberg Businessweek.

Meanwhile, JPMorgan this week pledged $30 billion toward racial equity, as CEO Jamie Dimon says he’s looking to “break down systems that have propagated racism and widespread economic inequality, especially for Black and Latinx people. It’s long past time that society addresses racial inequities in a more tangible, meaningful way.” Part of the plan:

• $8 billion earmarked for mortgages
• $4 billion in refinancing loans
• $14 billion in new loans to help finance affordable rental units
• $2 billion in loans to small businesses
• $750 million to Black and Latinx suppliers
• $50 million in the form of capital and deposits to minority depository institutions and community-development institutions
• $2 billion in philanthropic capital

In case you missed the latest research and $1 billion pledge from Citigroup, you can read about it here. The bank had found that racism has taken a significant economic toll on society, to the tune of $16 trillion in lost gross domestic product over two decades.

More on Wall Street

• In Lazard’s quarterly activism review, Jim Rossman found a 50% plunge in campaigns. “Covid-19 has kept activists largely on the sidelines,” he said in an email. “However, with the lion’s share of director nomination windows opening in December and January, and a tail wind from a resurgent M&A market, we could see campaigns pick up in the fourth quarter, led by major activists such as Elliott and Starboard.”
• People are increasingly sounding alarms about the economy, especially as Washington stalls on a stimulus plan. “The evidence is overwhelming,” Allianz Chief Economic Adviser Mohamed El-Erian, who’s also a Bloomberg Opinion writer, told my colleague Jon Ferro. “Throughout the advanced countries, the pace of economic recovery is slowing, and I can’t think of any exception.”
• Goldman is eyeing $14 billion for its largest fund since the 2008 crisis, and it could help raise the profile of British banker Julian Salisbury, according to Bloomberg’s Natarajan. The banker -- who is a key member of the merchant bank -- and Eric Lane were named co-heads of asset management last week, while Stephanie Cohen and Tucker York were tapped as co-heads of consumer and wealth management.

Bank earnings are next week. It will be big, and we have some timely interviews ahead. Stay tuned and keep in touch! All tips and ideas welcome in the meantime, at [email protected].