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Morgan Stanley (NYSE:MS) CEO James Gorman spoke with Bloomberg TV’s Erik Schatzker on “Market Makers” this morning and said that Wall Street banks don’t need to be broken up.  Gorman said, “This is a knee-jerk discussion that’s been going on…We need to just calm down, let this play out with the new regulation, the new capital rules, and at that point then figure out which businesses to accelerate and which businesses to slow down.”

In regards to Europe’s debt crisis and tomorrow’s summit, Gorman said that, “I think there has been a lot of extravagant language used at the Europeans…we should not presume it can be done over a Lehman weekend.”

 

Gorman on Phil Purcell saying that the biggest banks on Wall Street, including Morgan Stanley, need to be broken up:

“No, I do not think he is right…If you look at the financial services industry in this country, frankly it is no different from most of the markets in the world where you have these global universal banks who are of a size so that they can do the business that global corporations and institutions and sovereigns require them to do. I think this is a knee-jerk discussion going on. 10 years ago it was exactly the opposite. How do we put these institutions together? All of the sudden it’s how do we separate and break up these institutions. We are in a period of extreme turmoil in the markets and have been for three or four years. We need to just calm down and let this play out with the new regulation and capital rules and at that point then figure out which businesses to accelerate and which businesses to slow down.”

On why Morgan Stanley isn’t being rewarded right now by shareholders, the markets and the credit ratings agencies:

“I don’t know that the jury is out yet. I think we are still in the middle of a complex change to an industry that has happened maybe once in the last century, during the time of the Great Depression. So those who have an expectation that all of these changes will be summarized and made judgment on in a very short period of time are obviously disappointed. Those who have a little patience, which I do, and believe if you make the right strategic steps, you build the blocks of the future and position yourself so that in a more normal environment the markets will recognize the power of these institutions.  Then those who have patience, will be rewarded.”

On whether Wall Street banks that are funded by insured deposits shouldn’t be in the risk-taking business:

“There’s nothing wrong with using deposits to fund a firm. The question is not whether you have deposits, not how you fund the firm, but what are the businesses and what are risk management controls you have around those businesses? The big banks you mentioned, they are great institutions. They have done a phenomenal job managing through the financial crisis for the most part. I think it would be extremely premature to argue for a breakup of those kinds of institutions.”

On Moody’s and others arguing that having a trading business inside a deposit taking institution presents an unreasonable risk to creditors:

“In fact, that does not seem to be the evidence because Moody’s Corporation (NYSE:MCO) rated some of those institutions higher than the freestanding institutional securities businesses. No, I do not buy the argument and I think it is the kind of knee- jerk reaction that comes around in these crisis times. My view is, you lay out your strategic blocks, you a look at the total market opportunity is and you look at what is the best interest of clients. Clients want big, stable institutions serving global needs.”

On what impact JPMorgan’s Chase & Co. (NYSE:JPM) loss will have on the implementation of Dodd-Frank and the Volcker Rule:

“I don’t think frankly it will have a large impact on that. Again, I am not familiar with the details of what happened at the other institution…They have managed their risk over several years extremely well. Obviously there was an enormous disappointment, a mistake, as they said publicly, and they addressed it, owned up to it and recognized it as a mistake and made changes. That is what good institutions do.”

On how long it will take to return to a normal environment:

“It is a series of steps down the road.  Most people are waiting for nirvana—just tell me it is going to be ok. What is going to happen is we are going to chip away at some of the problems. So, one of the first steps was getting Greece into a situation where it could elect a government that could work with foreign countries to properly position Greece to remain part of the euro. That appears to have happened. The next step was making sure that when Moody’s came out, that the resolution of all of the uncertainties surrounding Moody’s was put in place. The ratings reflected what the market conditions were and now we can move on from that. That has happened. The third step, I believe, is the presidential elections in this country and other regime changes around the world. That is November. So I am seeing sort of the rest of the summer, early fall period as times when the markets, hopefully in Europe, we make some progress, the strength of the U.S. economy is more evident and much stronger than most anticipated and we get to the presidential election. Once we get behind that we need to move into deficit reduction ASAP.”

On whether tomorrow’s European summit will result in an agreement:

“I think there has been a lot of extravagant language used at the Europeans. The last two weeks I have visited eight European countries. We need to show them a little more respect. They are dealing with an enormously complex union of 17 different countries that share a currency but don’t share a fiscal regime. Working their way toward sharing that fiscal regime and at the same time necessarily giving up part of their sovereignty is an enormously taxing task. We should not presume it can be done over a Lehman weekend, which is what our time frame is. I just don’t think it’s helpful to use that kind of extravagant language.”

On whether Europe needs a Lehman-like moment:

“I think most of us wish we did not have the Lehman moment, actually, so repeating that and rolling it out where it is not affecting one country but 17 countries is a level of uncertainty and the potential for an unraveling which can be very damaging. So, no, i don’t think so. I think it is a political process. 17 governments representing 17 electorates having to come together with a shared view on who is helping to subsidize whom for what long-term gain. That’s a complicated process. That would not get done and will not be aided by a Lehman weekend.”

On whether he sees opportunities in Europe:

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