Morgan Stanley Chairman & CEO James Gorman spoke with Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland today.
Gorman said he would tell an employee who is unhappy with recent compensation changes at Morgan Stanley, “I say, you’re naive. Read the newspaper, number one. Number two, if you put your compensation in a one-year context to define your overall level of happiness, you’ve got a problem which is much bigger than the job. And number three, if you are really unhappy, just leave.” Excerpts from the interview can be found below, courtesy of Bloomberg Television.
Gorman on Morgan Stanley cutting compensation and limiting bonuses:
“It’s not as much [money] as everyone would wish for and probably more than what some expected in the world and turmoil we’re in. At Morgan Stanley, folks are terrific, they’re loyal. We’ve had no turnover of the top management committee at all. I think everyone understands it. The world has changed.”
“When we come out of this and start performing, obviously compensation will reflect that. Until then we have to respect the fact that our shareholders have to get paid, too.”
On what he says to employees who are unhappy:
“I say, you’re naive. Read the newspaper, number one. Number two, if you put your compensation in a one-year context to define your overall level of happiness, you’ve got a problem which is much bigger than the job. And number three, if you are really unhappy, just leave. Life’s too short.”
On whether he would cut more jobs if business conditions don’t improve:
“We have no intention [to cut more jobs]. We rightsized for what we thought the business environment was. Obviously if it gets worse, we’d have to look at that again. We think we’ve got the right organization for what the business potential is right now.”
Gorman on Morgan Stanley’s business:
“There’s little bit of relief. Despite what some people were predicting in the fall of last year, Europe did not completely collapse, the talks are ongoing and some progress is emerging, albeit slowly.”
“There are signs that the U.S. economy is doing better, unemployment ticking down. Against that, a little bit of a relief rally…I would say the tone is a little better. There’s a nice backlog. We’re waiting for deals to get done. Volatility is down and volume still remains muted, but the tone is a little better.”
On when Morgan could see higher M&A and IPO activity:
“I think we could see [more activity] in the back half of the year. Yes, it will take that long.”
“What I care about is incremental progress at this point, and that translates into our overall firm performing better. The first notch for all the financial institutions is now to get back to tangible book, which we’ve all traded well below for the last couple of years.”
“Some of the moves you’ve seen, the stocks including ours are up 15-20%, it’s a sign that the shareholders are starting to believe that [the banks] well capitalized, have proper liquidity, [have] cleared the decks of a lot of problems and what we need to focus on is the global market.”
On whether Morgan Stanley will underwrite Facebook’s IPO:
“I can’t talk about that; that’s up to Facebook to figure out. I think every institution is working for that. Over time, they’ll figure that out, if and when they become a public company.”
“Our practice has had a great year. We did a lot of deals with Groupon and Pandora and LinkedIn and Zynga, to name a few. Strong team but obviously that’s up to Facebook.”
On 2012 markets:
“I have felt for some time that in the U.S., fundamentals are stronger than the market has appreciated. Europe didn’t get worse, it hasn’t gotten a lot better, but if we can get Greece resolved and have one concrete outcome of these talks, that will be a major push toward more action by the ECB and I believe the eurozone staying together as we move forward.”
On whether a Greece debt deal will really help markets:
“I think [a Greek debt deal] is the catalyst for things not getting worse. If Greece fails, then it raises questions about much larger economies. I think what we’ve done with the change in administration in Spain and Italy and Greece, with the action by the ECB in December, with financing for a lot of the banks and the banks are now starting to raise capital and get their balance sheets in shape, we’ve got a lot of momentum. In my mind, getting Greece done is something concrete that puts a line in the sand.”
On regulatory overhang impairing Morgan Stanley’s business:
“What really matters to [Morgan Stanley] are the capital rules. If you are operating in 10% capital versus 5%, versus 7%, that obviously fundamentally changes the returns. Once we see the Basel III capital rules, which I think we have pretty good visibility on where they are – maybe with 50 basis points – we’ll be better off. We’re very comfortable with where that is heading.”
On coordinating with European regulators:
“With Basel III, we’ve got good coordination on capital liquidity…Every market is going to have their own idiosyncrasies – is it a transaction tax, a tax on bonuses, claw-back provisions. Those will always be idiosyncratic.
“What matters is that the new Volcker rules coming out don’t shut down basic market making which are essential to liquid capital markets.”
On Morgan Stanley’s progress in bringing down comp to revenue ratios:
“The wealth management business operates at about a 60% comp to revenue ratio, we’d like to see that come down but that’s where it is. The securities business operates at 40%, and given that we’re at half and half, we’re about 50%.”
“The growth in revenue potential for the securities business is higher than it is for wealth management, as we come out of this market funk. If that happens, that will drive down the comp pressure.”
“In the ratio of sort of moral outrage on compensation, hawkish behavior, economist rationalists and sheer greed, we are in the economic rationalist camp. We respect our shareholders but we also have to protect future cash flows, which means paying our people to drive the business for years ahead.”
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