Gorman: Wall Street Will Take Many Years to Regain Public Trust
Morgan Stanley CEO James Gorman spoke with Bloomberg Television's Erik Schatzker from the World Economic Forum in Davos, Switzerland today. On cutting employees' compensation, Gorman said that "everyone is comfortable with somebody getting well rewarded for doing a good job, but the problem in our industry and others in the past has been getting rewarded for not doing a good job."
On how far along the process is of the financial industry rebuilding the trust of the public, its customers and government:
"That is a good question. It is a journey. The heart of it is that the financial crisis destroyed a lot of confidence and trust and there have been a lot of misinformation since then, so it has been a slow build. But I think it starts with the amount of capital and liquidity banks have now put to work inside their own organizations. So they are a lot safer. A lot of the management has changed inside these organizations and a lot of the businesses they engaged in pre-crisis, they are not engaged in now. I think the trust is coming back, but it will be a multi-year journey."
On whether there's enough of a perfection of change from the public:
"It is very hard to tell. With the informed public, meaning those who follow the sector and understand the changes, I believe so, and that is why the investment market has re-rated the credit risk and the equity value of these institutions. With the broader public, I am not so sure. It is a complicated space we are in, and it will take several years. And frankly we need the global economies to recover."
On how bankers are viewed by the World Economic Forum:
"They keep inviting us, so they must think we are good guys. We have plenty of meetings and plenty of people who want to meet with and talk to us. The banks are an essential part of the global economy, everybody understands that. We went through a financial crisis. Enormous changes have taken place since then. Banks have largely recovered from all that--not all banks--but largely recovered. We're in a different place. We're very welcome and we should be."
On whether cutting compensation has a benefit in providing bankers with a better image:
"I don't know. It is hard for me to judge that. I think the way in which compensation is delivered---the form of compensation with deferrals and clawbacks--is much more consistent with the regulatory environment in the world that we are trying to arrive at. OS I think that is a clear positive. Cutting compensation has been a function of generating returns for shareholders obviously...More importantly it is the behaviour of the industry. Everyone is comfortable with somebody getting well rewarded for doing a good job, but the problem in our industry and others in the past has been getting rewarded for not doing a good job."
On whether he'll be involved in the debate over the debt ceiling:
"Where it is appropriate, certainly...I was on a call with the former Treasury Secretary Geithner--who I think did a very good job in a very difficult situation--Valerie Jarrett and others from the administration. We made a start. I think the corporations that got behind this -- we had over 20,000 of our employees write to the representatives in Washington. It was an important start, but again we are not where we need to get to get this deficit right.".
On what happens if Congress can't reach an agreement on the debt ceiling:
"Honestly there are too many unknowns. What was interesting--If we go back to the top vote, the first top vote failed. On the screens where you had the number of yays and nays and as it looked like it was apparent the vote was going to go down, the markets started to collapse immediately. Three days later, another vote had passed and the markets came back. The market holds no prisoners. The market spoke and Congress responded. At some point Congress has to respect that business confidence is driven by a belief in the future, and part of our belief in the future is our ability to control our own spending and our own debt."
On whether there's a possibility that it will get to a point where financial markets collapse and Congress takes action only on that basis:
"I do not think we will. I think there has been in the last several months through the Bowles-Simpson dialogue, the various Fix the Debt Efforts from the business community and the leadership on this from the white house. Everybody understand the nature of the problem, the elements of the fix. There are debates about how the elements are pulled, but everybody understands them, so we will get an answer."
On British Prime Minister David Cameron talking about leaving the EU, currency wars and the increasing risk of political and economic fragmentation:
"I would put it a little differently. In absolute terms as you described it, I agree, but in relative terms, I would not say I agree. Look at where we were 12 months ago and a lot of smart money was handicapping a breakup of the euro--Belgium, German, Netherlands, Nordic countries versus southern. A major breakup. It did not happen. We are in a much better place than we were even then. You have had fiscal restraint in Portugal, Spain and you've had new leadership in Italy, strengthening in Germany. When Angela Merkel went to visit Greece, that to was Germany's ultimate sign of keeping the European Union together as it is."
On whether he feels that markets are getting overheated and whether asset prices in some markets are getting toppy:
"I am not so sure about that. There is still a lot of cheap money around and that is what leads to asset bubbles. There is certainly a shift from bonds to equities. We have seen some recovery in the housing stocks. I would be hard-pressed to describe this as toppy."
On whether we're getting to a point where easy money is doing more harm than good:
"I do not think so. I think we are still in a recovery zone. I think we really are. The U.S. economy is growing at 2%, the European economy is not growing, japan is not growing, china looks like they are back on the way to growth. There are still a lot of muted areas around the world. There is nobody running a victory lap just yet."
On whether the concern that bank capital rules have introduced a dangerous risk to the fixed income markets is real:
"I do not know if that is real. If you look at the banking system now, it has dramatically higher capital than it's had at any point in history, certainly in recent history. Take Morgan Stanley, for example. Four or five years ago, we had $30 billion of capital. We have $60 billion of capital."
On what parts of the world he's not bullish about:
"You would be hard-pressed to be bullish about the European markets now, but i would say that I am confident they have stabilized and we have hit the bottom. Japan is certainly making serious efforts to stimulate that economy, which we have not seen in a long time. The various commodity markets, like Canada, Australia, Brazil, the trade in in fair part over the back of grown of China had a hiccup over the last 24 months, but seem to be recovering. I do not want to be too exuberant, but I am convinced we have turned from the bottom and I'm convinced the U.S. economy will lead the way."