Morgan Stanley’s James Gorman wanted to pull off a rare feat: a bloodless succession. Wall Street thinks the bank may have done it, but it’s too soon to tell.

• Morgan Stanley chose investment-bank boss Ted Pick for CEO and promoted his rivals.
• Wall Street has embraced the clever move that keeps all the contenders on board, a rare feat.
• Analysts told Insider the trio is vital to the bank’s success — and warned it’s too soon to celebrate.

When Morgan Stanley’s James Gorman announced his retirement in May, he had a good problem to have: too many qualified candidates for the CEO position.

The bakeoff has concluded, but with a twist. Ted Pick, the CEO of an investment bank, was appointed in January and his two rivals were promoted at the same time. Dan Simkowitz, the head of asset management, will take over Pick’s division, while wealth manager Andy Saperstein will add Simkowitz’s unit to his responsibilities.

Gorman has been steadfast in his determination to have a bloodless succession, which is unusual on Wall Street, and the leadership changes are encouraging. Analysts have praised the move, and the bank’s stock price has risen since the announcement on Wednesday evening. At Thursday’s market close, it was up 0.9%.

According to Evercore analyst Glenn Shorr, the increase can be attributed to the bank not only for selecting Pick, a proven commodity on Wall Street, but also for retaining all three executives.

“These firms are big and can handle a lot, but I really believe it’s best for employees and shareholders if that trio stays together,” Evercore analyst Glenn Schorr told Insider. “Stability matters and this helps provide it.”

However, Wells Fargo analyst Mike Mayo believes it is too early to rejoice. Both Saperstein and Simkowitz have received significant promotions, which most likely came with employment contracts requiring a certain number of years of service. But it’s anyone’s guess whether both men will stay in the long run.”The CEO is saying that they’ve proved the Street wrong with succession when it takes years,” Mayo said in an interview. “That’s a red flag towards complacency.”

Pick must fill large shoes, and Saperstein and Simkowitz are critical to the bank’s success.

The transition is intended to maintain continuity by keeping the trio on and Gorman as chairman for an unspecified period of time. Morgan Stanley is thriving in comparison to its megabank peers, thanks to the executive leadership team’s well-oiled machine.

Pick’s anointment, however, comes at a time of cyclical pressures. According to Mayo, the third-quarter earnings call revealed that wealth management inflows have slowed, asset management has seen outflows, and the institutional securities group’s core business, banking and markets, scored the lowest among its US peers.

“Ted Pick has big shoes to fill at a time when there are some questions in each of their three businesses,” said Mr. Pick.

This makes it even more critical that Saperstein and Simkowitz remain. Pick has established himself as Morgan Stanley’s turnaround specialist, transforming the firm’s key equities and fixed-income businesses. However, he lacks experience in the bank’s other two divisions, which, according to Mayo, account for two-thirds of its stock valuation.

However, Bank of America’s Ebrahim Poonawala is more optimistic, citing Pick’s performance during the financial crisis. Pick, then head of global equity capital markets, assisted in arranging a capital injection from Japan’s largest bank, Mitsubishi UFJ, when Morgan Stanley was on the verge of bankruptcy, and coordinated the buyback of warrants to repay the government following the bailout.

“I think it battle tests you,” he explained. “It kind of creates a sensitivity towards risk towards the operating environment that cannot be replicated by running a business or not running a business.”

Analysts told Insider that the promotions for the runners-up are more than just consolation prizes. While the terms of their employment contract have not yet been disclosed, the timing of the announcement suggests that the board is confident that the pair will stay for at least one to two years.

“They are both getting something larger and more interesting to do,” she said. “It’s not like these are mundane roles.”

Saperstein, 56, and Simkowitz, 58, both have long histories with the firm, having worked for it for 32 and 17 years, respectively. All three candidates are considered “good friends,” according to Pick in an interview with the Financial Times. Leaving Morgan Stanley would force them to step outside of their comfort zone.

“It’s a firm they know very well,” said Stephen Biggar of Argus Research. “You take a risk anytime you leave that the culture is different.”

Management changes could ruffle some feathers

Pick’s divisional lieutenants were passed over when Simkowitz was promoted to run the investment bank. Simkowitz worked in the division before taking over asset management in 2015, so he is a familiar face, but Saperstein, who will run Simkowitz’s current business line, is not.

Employees from these executives’ right-hand men and rank-and-file Morgan Stanley employees may be dissatisfied with the changes.

“I think nothing should be taken for granted when you have tectonic shifts such as this at the top of a firm such as Morgan Stanley,” Mayo said. “You would expect everyone’s guard to be raised at Morgan Stanley to monitor employee reaction and manage at least the best performers.”

It will take years to determine whether the transition is as well-choreographed as it appears. However, the bank benefits from the fact that the five-month wait is over.

“This has a distraction — a fair distraction — but a distraction from, ‘Let’s get back to growing the business and executing,'” Schorr said. “From that standpoint, I felt time would eventually start working against the process, so it’s good that it’s done.”