James Gorman: Dangerous To Second-Guess Warren Buffett

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Morgan Stanley CEO James Gorman told Bloomberg Television’s Erik Schatzker at Columbia Business School today that he doesn’t see evidence of market bubbles developing. Gorman said, “There’s a lot of robustness…The indices have obviously rebounded tremendously, but from very low levels.” While the Fed’s program has created “a flood of money” in the debt markets, “it’s been necessary to get this country back in balance.”

James Gorman: Dangerous To Second-Guess Warren Buffett

Gorman commented on Twitter’s IPO, saying, “Everybody, for the market’s integrity, transparency…we are all rooting for a clean opening…I think we will get one.”

On whether Warren Buffett is right when he says that public companies should not be spending shareholders’ money on charitable causes, Gorman said, “It would be dangerous to second-guess Warren Buffett. He is right on most things.”

Table of Contents Show

James Gorman video embedded below

James Gorman on the government’s aggressive tactics on the banking industry and whether what it’s doing is justified or extortion:

“I do not think it is quite that simple. I wish life were that simple. I am not going to talk about what competitors are doing. We have courts. We have a legal system. If you don’t like what is being enforced on you, you have a right to take it to a judge and have your case heard. These are choices that corporations have to make. Let’s be clear. There has obviously been fallout from the financial crisis. A lot of investors and individuals were damaged from it and this is the response to that. Is it fair or reasonable? That is for each company to figure out.”

James Gorman on whether the crackdown on JPMorgan is a sign of what’s to come for other banks:

“We understand where we have different discussions with government and other agencies. What lawsuits we have–we have filed them all in our 10Ks and 10Qs exhaustively. We do what we think is right for our shareholders and also for the other party if there is an appropriate case.”

James Gorman on Jamie Dimon saying that JPMorgan did not see it coming and whether that changes what he anticipates from the government:

“No. I don’t know what they saw or didn’t. You would have to ask Jamie Dimon about that. I care about what is going on at Morgan Stanley (NYSE:MS). We have a very clear view of what happened in the financial crisis and what our responsibilities are.”

James Gorman on whether there’s any risk in his mind that Twitter’s IPO could be half the debacle that Facebook’s was:

“Let’s start with Facebook. It is interesting you refer to it as a debacle. As an investor who might have bought the stock at the open at $38 to own it now at over $50 strikes me as a pretty good return…Hopefully investors have a long-term view. Those who were day trading it and I said it at the time, probably on your TV program, those who were trading on that day, if they were disappointed then that was their problem for not holding on. If you had a long-term view about what kind of extraordinary company had been created with Facebook Inc (NASDAQ:FB), you could see the potential for this stock, and that’s exactly what happened.”

“[Twitter] is obviously a different company and I obviously can’t talk about it because they are on their road show. What is great and the missing part of these stories–forget pricing on the day and how the stock acted for the first few months and so on and reflect on the fact that ultimately, it has turned out very well for investors. The key to the story is that we are innovating. We are creating great companies with enormous value, and it is being done in this country. It’s a good thing for the economy.”

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James Gorman on whether underwriters and exchanges have learned a lesson from Facebook’s IPO and whether he expect that the execution of Twitter’s IPO will go more smoothly than Facebook’s:

“I don’t think there was an underwriting issue. Let me just leave it at that…I’m not going to talk about that. We would like a cleaner opening. Everybody, for the market’s integrity, transparency, that would be a good thing, so we are all rooting for a clean opening…I think we will get one.”

James Gorman on Larry Fink saying that he is seeking bubble-like markets again and whether he agrees:

“Not really, no. I don’t. I see the equity markets. The S&P 500 (INDEXSP:.INX) is trading at 1700 and change. It is frankly not bubble like relative to the year 2000, 2005, 1995 and so on. On the equity markets, no. There’s a lot of robustness. The indices have rebounded tremendously, but from very low levels. There has been a flood of money out there through the quantitative easing program. It has been necessary to get this country back in balance, so no, I’m not sure I’d share that view.”

James Gorman on whether he agrees that the longer the Fed keeps quantitative easing in place, the greater the risk of bubbles:

“The reason they’re keeping it in place is because the economy is not growing. The economy is not doing what it is supposed to do, which is creating jobs. We should all celebrate the day they start tapering because it means the Fed, with all the resources they have, have a fundamental view that employment is back to where Chairman Bernanke said it should be, which is 6.5% or better.”

James Gorman on Morgan Stanley’s target of a return on equity at 10% and why it’s stuck at 6%:

“I don’t think we are stuck, we are actually below 5% last year. If you look at the numbers, the trend is our friend. We did not say we would achieve that this year. We are carrying lots of capital as evidence by our first buyback that we initiated in the middle of this year. The combination of a firm which has returned to the kind of position it was in, but in an environment where the markets have been pretty light.”

James Gorman on whether there’s anything but Fed approval from constraining Morgan Stanley from pursuing a bigger buyback and whether it’s something he’d like to do as aggressively as possible:

“I don’t know as aggressively as possible. This is where I separate what the regulators would think is appropriate and what we think is appropriate. In some ways we are the toughest on ourselves. We have been very conservative the last couple of years relating to capital and capital management, and at times we have been criticized for that–for being too conservative. Job number one is to get your capital base into prime shape. Job number two is to create enough earnings where you can position yourself for incremental capital buyback. We’ve just started that program. We’re going to take a very balanced approach here.”

James Gorman on the Morgan Stanley Institute for Investing and cynics who say that it’s nothing more than an attempt to burnish the firm’s image rehabilitate the perception of Wall Street:

“A cynic would be right if we had just started it today, but we haven’t. We’ve had a sustainability group for a few years. We been involved in a lot of financing and a lot of lower income housing development and working with the communities around this country and the world. Today we have crystallized it by forming a partnership with Columbia Business School. We are creating a special internship program where we bring students in for the summers to work with us and develop skills in this space. We’re matching investors’ needs and desires to be investing in sustainably oriented companies. It is a major ramp up from what we have been doing.”

James Gorman on whether capital is involved:

“It is putting money at work through our bank institute bank program where we have a lot of deposits around the country. We are putting back into those communities as part of the CRA process. We control through our clients’ accounts about $1.8 trillion. Those clients are telling us find us interesting investment vehicles that meet our needs of dealing with the world where resources are obviously constrained. It is bringing the intellectual capital around the new products. Finding those products for our clients and letting them invest. We think we can put $10 billion to work.”

James Gorman on whether it’s corporate philanthropy:

“No, it’s not corporate philanthropy. It is doing the right thing and meeting an investor need that is out there in the marketplace.”

James Gorman on whether Warren Buffett is right when he says that public companies should not be spending shareholders’ money on charitable causes:

“It would be dangerous to second-guess Warren Buffett. He is right on most things. Every corporation has to reflect the values that are dear to it. Investors have choices. If they don’t like the decisions you make in your corporate philanthropy, they don’t have to invest with you. I don’t think everybody should do the same thing. We are clear about our desire and need to give back to our communities.”

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