Morgan Stanley CEO James Patrick Gorman on E-Trade Acquisition

Morgan Stanley CEO James Patrick Gorman on E-Trade Acquisition
Image source: CNBC Video Screenshot discussing the deal earlier today

The following is the unofficial transcript of a FIRST ON CNBC interview with Morgan Stanley Chairman and CEO James Patrick Gorman and CNBC’s Wilfred Frost on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Thursday, February 20th. The following is a link to video of the interview on


Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q4 2019 hedge fund letters, conferences and more

Gates Capital Management Reduces Risk After Rare Down Year [Exclusive]

Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More


Watch CNBC’s full interview with Morgan Stanley CEO James Patrick Gorman


DAVID FABER: Let’s get right to them. Wilfred Frost alongside a very special guest. Frost, over to you.

WILFRED FROST: Sara, thanks so much. A very good morning to you and very good morning to James Patrick Gorman, the Chairman and CEO of Morgan Stanley. Thanks so much for joining us. Thanks for having me.

JAMES PATRICK GORMAN: Thanks for coming.

WILFRED FROST: Great deal. Big smile on your face. Talk us through the rationale and the timing.

JAMES PATRICK GORMAN: Well, firstly, excuse my voice. I think I’ve been talking so much for the last few days, I nearly lost it last night, which would have been a challenge with investors today. You know, the rationale is this is sort of the next step in our journey. I mean, it’s got implications for the wealth management business, first and foremost. There’s been a convergence of technology across all platforms. And this gives us, you know, access to both the workplace, the direct, as well as our core financial advisory, which is unchanged, it’s just added to. And then, for Morgan Stanley, it just gives us more balance, it’s a capital-light business, it’s part of the journey.

WILFRED FROST: We’re going to dive into all of those different factors strategically. I want to start on the timing, though, if I may. I asked you specifically about a potential acquisition for E-Trade in December, December 13th. You were kind of sitting on the fence a bit actually, now that I look back at it. David Faber just saying he thought the conversations only started this month. When did they start?

JAMES PATRICK GORMAN: Well, in truth they started in 2002.


JAMES PATRICK GORMAN: Before you were born.

WILFRED FROST: Just about.

JAMES PATRICK GORMAN: Just about. I called them back then when I was at Meryl because I was very intrigued by the fact that there were always going to be segments of clients who only wanted deal with electronically and digitally. And the people also wanted financial advice also wanted digital access. So, it was also a buy versus build. Then I called them again and we had pretty extensive negotiations in 2007. And in the end, we couldn’t get past their HELOC portfolio, which, you know, proved to be a problem. So, these discussions reinitiated in December. So, about the time we were talking, I might have had a little twinkle in my eye.

WILFRED FROST: There we go. I think you did. I should have pushed harder back then. But, anyway, in terms of getting over the line, it’s an all stock deal. Your stock is up sharply since then. Did that give you the currency essentially to get the deal done?

JAMES PATRICK GORMAN: Not really. You know, we had the confidence. I mean, our stock was beaten down in the summer. Which I thought, and you know, people joke at me for defending our stock but I kind of think it’s my job, and I am a large individual shareholder. It was ridiculous -- we were trading below book value in the summer. We had just produced $8 billion of revenue and 11% ROE. So, the stock was being beaten down for reasons that were wrong, I felt. No, this was a longer-term thing. But certainly, gives you more confidence when your currency is strong.

WILFRED FROST: In terms of the share price move today, it’s down about 4%, it was very dilutive, the stock issuance. Do you expect it to be down more? Are you pleased with only down 4%?

JAMES PATRICK GORMAN: You know, I totally expected it to be down at the open. I don’t know where it’ll finish today, a week, a month. You know, it’ll bounce back from that. We’re still trading above what we were before we started the earnings call in January. And we own E-Trade. So, it’s kind of like, this is not a bad outcome at all. We’re up, as you said, 40% from the summer. Listen, it was dilutive on a tangible book. It was accretive on RITC. And it will be accretive to earnings within three years. So, though I am very comfortable where the numbers are. And I think the stock will trade just fine over the next several weeks.

WILFRED FROST: Was one of the factors about timing also to make sure somebody else didn’t buy this asset? Goldman Sachs, in fact, trading down 0.2%. A win for you, is it a direct blow for them?

JAMES PATRICK GORMAN: Well, I’m not going to comment on Goldman. But I think, you know, when I think about strategy and big strategic moves, it’s -- you’ve got to have a clear, strategic vision. And I never worry about strategy from envy. I’m never trying to copy what somebody else is doing. We have to do what’s right for Morgan Stanley. When you get that done, you have got to be very opportunistic. You have got to move and move quickly. We put in obviously a very full, I think, appropriately, bid for a great, great company with an iconic brand. If we had messed around with that and tried to do this on the cheap, that would have created all sorts of turmoil. So, when you make your mind up, you be aggressive to get the job done. And that’s what we did.

WILFRED FROST: Was the primary driver you were most attracted to the corporate stock program?

JAMES PATRICK GORMAN: It’s a great program and we’re in that business. So, you know, and they’ve done frankly a really good job converting clients who come through that business. That is one. The secondary was just the sheer technology. I mean we bring in a group of technologists that I think will drive our technology platform even further than we’ve been able to do. They have online banking. We can roll out to 3 million clients now at a level that we haven’t been able to do.

They have $60 billion in deposits, $40 billion on the balance sheet. We’re able to do things with that with our funding. They have a tremendous number of clients who leave their organization over time as they want a financial adviser. Now we can be their financial adviser. We can put research on their platform, alternatives on their platform. The beauty about this deal is there are so many positives. And there’s going to be no dislocation to clients. It’s just adding to what they’ve already got.

WILFRED FROST: You mentioned on the analyst call that E-Trade tends to serve a younger and more mass-market client. So, is this planning for the future therefore for Morgan Stanley? Or are those guys already immediately profitable?

JAMES PATRICK GORMAN: Well, they have a mix, I mean, like we do. We also have a lot of young clients. We have a lot of clients who don’t have a lot of money. But most of our business is in the 1 to $10 million plus households. We have $1 trillion with people over $10 million. The demographic is different. It is certainly an option play on that. You know, it gives us access to a different demographic. They also have a heavy trading demographic, which we respect and will support, and nothing will change for those folks. So, and then, finally, you know, this platform could be a platform to take internationally.

You know, I’ve been very interested in having a digital platform outside the U.S., rather than trying to rebuild massive financial adviser networks. We have a boutique sort of private wealth business in Asia and Latin America. This would be very supportive over the coming years.

WILFRED FROST: There was a joke on the call. You mentioned, you are buying lots of technologists. There was a joke on the call that Mike the E-Trade CEO is more of a jeans and t-shirt type man. Are you going to adopt to his dress code or is he going to have to suit up?

JAMES PATRICK GORMAN: Do I look like I’m a wearing jeans man? No, listen, believe it or not, I do wear jeans. No, Mike is a great guy. They have a more casual culture, but you go to our trading floors and go to a lot of our offices it is no different. It is the old schmucks like me on the 40th floor who have to get with the program.

WILFRED FROST: And the younger schmucks like me. So, anyway, I thought we’d go – what about the internal response, more seriously? Because you did lay off some people late last year. Some people suggested for what was a record year of earnings that comp wasn’t as high as it could have been. And Morgan Stanley is always seen as, you know, elite, top rung investment bank and you are buying something that’s a bit more mass-market. Are people disappointed with the brand dilution?

JAMES PATRICK GORMAN: Oh, I doubt very much. I mean, I haven’t had time for feedback. I just did a call with the managing directors on very short notice. We had 750 managing directors, about half our managing director group dialed in to it globally, which is pretty incredible given some of them are asleep right now. No, I think, listen, we’re -- we’ve got, you know, everything from electronic trading and equities to the prime brokerage business to M&A to financial advisers in every town in America. We have a digital platform already.

This is not culturally far from where we are. This is not -- I don’t think of this as a mass-market company. I think this is a very savvy, tech driven, digital company. And that’s what excites me about it. The commonality is we are all in the markets business. Right, when Mike is joining our committee, when he’s sitting at the table and we’re talking about prime brokerage, Mike understands prime brokerage. So, we’re all -- this is not going to be a heavy lift from that perspective.

WILFRED FROST: What about some of the high paid financial advisers brokers you have whose job is basically to give advice, high paid advice, to clients to try and then encourage them to trade. Does this acquisition make them somewhat redundant?

JAMES PATRICK GORMAN: Oh, god, no. No. There’s always been direct access, right? And many clients, you know, have direct accounts away from us. They have them with other institutions. We’d rather now have them with E-Trade. No, the advisory platform remains incredibly robust. It exists for a reason. You have complex financial needs, you need a partner to help you with those needs. This will be additive to those financial advisers because we’ll now be giving them online banking to provide to their clients. We’re giving them online trading for children or friends or family, if they want to open another account. And we’ll be giving them referrals out of the system. So, it is clearly positive for financial advisers.

WILFRED FORST: I want to switch focus a little bit and just ask about the Coronavirus. What is your latest advice for your employees in China and the region? Are they back to work yet or not?

JAMES PATRICK GORMAN: No, a lot of people are still working remotely in the region. And you know, I think that’s smart. It looks like, I saw the numbers this morning from Wuhan were the lowest, but they’ve changed the reporting methodology. It appears to have peaked. That is no solace for those who are affected by it or might be affected by it. So, we’re still, like I think all major corporations, very cautious about folks. We cancelled, we have a new managing director conference which we’ve canceled, and we are moving later in the year. We don’t want to put any more pressure on folks who are dealing with their families.

WILFRED FROST: Do you think the Chinese GDP impact has been understated at the moment, potentially?

JAMES PATRICK GORMAN: You know, I think they’ll provide stimulus. They will bounce back out of this. They did out of SARS. Obviously, it was a very different time. The Chinese economy is much bigger now. It is also much more coordinated. No. They’ll have a hit to GDP. But they’ll bounce back. If they get the serums right and get in control of this, this will pass through.

WILFRED FROST: A quick question to the environment back here. Another Democratic debate last night. Bernie Sanders very much the lead and the front runner. Lloyd Blankfein recently Tweeted he would, quote, ruin our economy if he became president. Do you agree with that?

JAMES PATRICK GORMAN: Well, Unfortunately, I don’t have a Twitter account, so I can’t enter that debate regrettably. I’ll have to leave that to Lloyd and Bernie to sort it out.

WILFRED FROST: I mean, clearly, he is retired so it allows him to speak more freely. But what is your take? Would a more admittedly socialist candidate hurt the U.S. economy?

JAMES PATRICK GORMAN: You know, Wilfred, I don’t know that I want to get into the politics. This is a great country. We have separation, three legs of government. We have the two houses. Any president has to deal with. Things don’t happen as quickly as some people in their campaigns suggest they might. Let’s see how the election plays out.

WILFRED FROST: Well, James, as always thank you for your candor and congrats on a great deal.


WILFRED FROST: And we appreciate your time. James Patrick Gorman, Chairman and CEO of Morgan Stanley. Carl, back you to.


Jacob Wolinsky is the founder of, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at) - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
Previous article Now Puma and Adidas warn of coronavirus impact
Next article Memphis Meats Just Raised $161 Million

No posts to display