Morgan Stanley (MS) CEO James Gorman spoke with FOX Business Network’s (FBN) Charlie Gasparino about the issue of breaking up the big banks in the United States and about the state of the economy. When asked whether he thinks Congress will break up the big banks, Gorman said, “No. I do not. I think it will make America less competitive.” Gorman also talked about Facebook’s troubled IPO and whether the overall IPO process should be changed and said, “I don’t think it should be.” Additionally, Gorman discussed the state of the economy and when the small investor might return to the stock market, saying “Confidence is growing. Unemployment is ticking down. So I think it’s more a gradual shift.”
The video interview and excerpts can be found below:
On whether he thinks Congress will break up the big banks:
“No. I do not. I think it will make America less competitive. They’ll take up the debate but reasonable people will get through and debate, as we’ve had a series of these things over the past few years, that will recognize it’s an essential element of American competitiveness and there’s actually no industrial logic for it…I pray and hope that we don’t do it.”
On when the debate over breaking up the big banks will start:
“Oh boy. I think it’s started and I am sure at Davos which I am actually heading off to next week.”
On whether he is worried about the debt ceiling:
“I prefer having a ceiling. I prefer having that sense of discipline. I like everybody else in this country including the politicians has been frustrated by our inability to grab this issue by the throat and start to do something about it for the future of our competitiveness. Now we had a start with the deficit reduction efforts. Prior to that, I thought the Bowles-Simpson Commission was a powerful response to what we could do about our own deficit.”
On whether he thinks Morgan Stanley will survive even if the big banks are not broken up:
“Our survivability is not an issue. The question is how much we’re going to thrive and how soon. I think the market’s response today reflects that. But in defense of our competitors and there is a bit of a push now about this whole break up the banks, I think it is dead wrong.”
On whether the IPO process should change:
“Personally I don’t think it should be. And there’s a reason for that. The reason the process was put in place was that individual investors would not be whipsawed by the latest piece of research that might cause them to suddenly thunder into the stock, which is actually what everybody thought was going to happen on Facebook Inc (NASDAQ:FB). Many pundits the day before Facebook Inc (NASDAQ:FB) thought that stock was going to 80, not to 20. The smart money had it going to 80, not to 20. So actually the rule put in place, and I guess it was the SEC, was designed to protect individual investors.”
On whether it’s the right thing to give all investors the same information:
“I disagree with that, for this reason. Let’s assume that a lot of investors had decided not to go into this stock on account of that last minute advice that one of 17 analyst or whatever, and the stock went up, how is that doing the right thing by helping them miss out on the opportunity, it could have gone either way… No, listen, I appreciate the point. We did what we — we followed what is obviously industry practice and required. I personally happen to think it is wise practice because I think it is more often going to go in the reverse direction. You get a little bit of puffery in some of these reports and all of a sudden everybody is buying into a stock. So I thought it was prudent.”
On why he thinks President Obama ignored the Bowles-Simpson findings:
“I can’t speak for the president…this is politics, this requires two parties. The Republican party had to concede something on the tax side, the Democrats had to concede something on the spending side. The way I saw it was with the spending cuts that were in process already and with the growth in the economy, we needed $2 billion dollars, 2 of the 4, it was pretty straightforward, a billion of tax increases and a billion of spending cuts. Pretty simple solution. One person came in with .8 and 1.2, the other came in with 1.4 and .6. businesspeople would get this deal done in an afternoon., this is what we do.”
On how he can predict consistent earnings when the small investor isn’t in this stock market:
“The interesting thing is, even with the small investor on the sidelines, the business is showing remarkable resilience. So with zero interest rates, very little new equity being issued and very little investor confidence, the market is showing great resilience. Again, our investors, we have small investors but we also have very large investors. We run the gamut. I have watched the flows and I just feel like with a recovering U.S. economy, investors’ 401K plans are up, the last 12 months significantly.”
On whether there is a pivot point where the small investor returns to the market:
“I don’t know that there’s a real moment that does it. I can’t think of what the big epiphany where everybody says oh I got it but I think it’s just a growing sense of confidence. We needed Europe. We needed Greece to stop looking like he whole country is under riot. We needed Europe to stabilize broadly. We needed the Chinese leadership transition to happen and happen seamlessly. We needed the election to be past here. We needed the start to the fiscal cliff resolution. All of those things have started to happen. Confidence is growing. Unemployment is ticking down. So I think it’s more a gradual shift.”
On whether he thinks the firm will remain independent in the future:
“Absolutely. I don’t know what our market cap is today, but we’re a $40 billion-ish type of company. We’re 22 percent owned by Mitsubishi Bank, second- or third-largest depository institution in the world. So we’re now a very large and very connected global institution.”
On whether we need big banks and whether Congress is going to break them up:
“I don’t subscribe to that view at all. It may actually suit smaller interests of ourselves and others versus the big commercial banks but I think that’s flawed logic. The biggest banks in the world are not the U.S. banks. They’re Chinese, Japanese, the Swiss banks, the French banks, there are a lot of big banks in Australia.”
On why the big banks are important:
“Well, firstly, as a percent of GDP, the size of the four largest banks in this country compared to any of the major industrialized countries in the world, is smaller. So they are actually less systemically important to our economy than Switzerland, France, Canada, Australia, Japan, China, you go down the list, number one. Number two, global corporations, companies like GE, they need balance sheets the size of what our major banks have in order to support their businesses globally.”
On whether MS Chief Financial Officer Ruth Porat will leave Morgan Stanley and take a job with the U.S. Treasury Department:
“I have no idea what’s going on there. All I know is that Ruth is very talented.”
On whether Porat has talked to him about leaving Morgan Stanley for the Treasury:
“No. Ruth is my CFO. Her obligation is at Morgan Stanley. I have no idea what the future is going to bring. She is a very talented person. We are proud to have her on the team. I am delighted I picked her for the job a couple of years ago.”
On what would happen if Perot left:
“We’re a great organization. Listen, we all move on at some point. Myself, my predecessor John. These are great institutions.”
On White House Chief of Staff Jack Lew:
“I barely know him. Personally I have only met him once or twice myself. I have a lot of respect. He is obviously enormously competent bright guy, has the president’s confidence which is essential as incoming Treasury Secretary so I look forward to working with him.”
On whether he thinks the ideas from Bowles-Simpson are dead:
“I think it’s provided the energy of; A. we need bipartisan, B. we need both ingredients to make it work, and C. we need a sense of urgency because this stuff is really important.”
On whether the era of supercharge profits on Wall Street is over:
“Investors I think appropriately should be looking at risk adjusted returns. The era of very high but very risk-driven returns is over…the question is the quality of the returns you’re now getting I would argue is more stable more predictable and more secure.”
On Morgan Stanley’s decision to defer cash bonuses for three years:
“Well, firstly, that’s not exactly accurate, what you just said. What we — 82 percent of our employees will get — I think it’s next week, I’m not sure when the actual cash hits, but this month, will get 100 percent of their compensation. The remaining 18 percent had — the cash is deferred over three years, but over that three years, 25 percent of it is paid in four months… 50 percent of it is paid out this year. So it’s not deferred over three years, 50 percent this year, 25 next year, 25 the year after.”
On whether Third Point LLC Hedge Fund Manager and activist investor Daniel Loeb suggested the idea of deferred bonuses:
“Absolutely nothing to do with it. The only conversation I’ve had with Dan Loeb was to welcome him to the share registry. I’m delighted to have him. I would like to see somebody who also thinks the stocks should go to 40 bucks, why not, this is a great thing. He’s a smart guy and he has figured Morgan Stanley (NYSE:MS) is on a turnaround.”
On whether he has heard complaints about deferred bonuses:
“Oh, I’m sure. Listen, give me the money in the future or give it to me now, 100 percent of people would say give it to me now. Give me the money in the future — part of the money in the future or don’t give it to me at all, 100 percent would say give part of it in the future. That’s the reality.”
On why Morgan Stanley (NYSE:MS) is deferring bonuses:
“We’re doing it because we want to tie our employees’ actions to the business decisions we make and make sure that we’re aligning their interests with the interests of shareholders from what we’re doing with the business. And we’re also doing it because we’re digging out of this crisis that we have been in and we’re trying to make sure we do pay people.”
On whether he’s made up with NASDAQ CEO Bob Greifeld following the Facebook IPO:
“Well, we never fell out. We had a discussion. We had a discussion and we moved on, right? We moved on. It is a big world. What I care about is that Facebook has come back and as company that is at the essence of American innovation, $60 billion company, got created overnight.”
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