Gorman to Bloomberg TV: Those Worried About FICC Unit Need To Get A Life
Morgan Stanley CEO James Gorman appeared on Bloomberg Television today from Davos, where he spoke with Erik Schatzker and Stephanie Ruhle about the culture of the banking industry, the income inequality issue and Morgan Stanley's fixed income business, among other topics. Gorman said that Morgan Stanley is reviewing its work policies related to junior bankers: "People should pursue a career because they're passionate about it, and obviously the hours have to be reasonable so they can have a balanced lifestyle. Otherwise, they become very uninteresting advisers to companies because they bring a very narrow perspective." On giving weekends off, Gorman said, "I'm not sure that's the right answer because I'm not sure how you stop work if there is a deal on."
Gorman also said that those who obsess over Morgan Stanley's fixed income business "better get a life...There's a lot of things to worry about in this world." Other highlights:
- 'Not Surprising' trust still not regained
- Finance industry is doing a lot to rebuild trust
- Employment is key to regaining trust
- 'No new mistakes' also key to trust
- U.S. minimum wage is a problem
- U.S. minimum wage needs to be raised
- Income inequality is moral issue not business issue
- Morgan Stanley is doing many things 'on the offense'
- Never doubts need for investment banking, trading
- Fixed-income last year was 'tough'
- Those worried about firm's FICC unit need to get a life
- Sees growth in wealth management, fixed income
- This year to likely be better for fixed-income trading
- Use 'common-sense' in staff management stress
- Firm is reviewing junior bankers' work culture
Gorman on why banks are the least trusted industry in the world:
"I am told we are actually the second least. Fortunately, we have still got Congress. In all seriousness, this is the most damaging financial crisis since the Depression, maybe even well before that, with all of the home foreclosures, the bank failures, and the impact that that had on the global economy. It was devastating. It does take lot of time to recover their trust. That is not surprising."
On whether the industry is doing enough to restore trust:
"I think the industry is doing a lot. The first thing you need is strong institutions. The first thing the industry did was start recapitalizing, raise their liquidity, cut their leverage. Secondly, the industry started shedding the businesses that were at the root of what got the big banks into trouble during the crisis, which were a lot of the proprietary businesses."
On what his strategy is to tell the great American banking story:
"I don't know that you can tell a story to an audience that is not ready to listen. First of all, we have to get employment to a state, particularly in the U.S., where more people are in jobs. If people are in jobs, they are much more wiling to listen about what you are going to do for them. And for better or for worse, a lot of the blame for the failure in the economy over the last several years is the financial crisis. So let's get the economy going. Number two, no new mistakes. One of the mantras we have internally and I put it as one of my top ten goals every year, no new mistakes. Let's not repeat what caused us to get in this position."
On income inequality:
"Legitimate issue. Look at the minimum wage, particularly in the U.S., since 1950 inflation adjusted. It's terrible. You look at the rest of the world, the minimum wage is a problem. We are clearly creating societies where we have large groups of haves and haves nots. That was expressed by the public during the financial crisis. And we need to address it."
On whether the minimum wage needs to be raised federally:
"I don't know whether it's federal or state, but I do think the minimum wage does need to raise. We have a period now of 30 years where we have become global markets, and that has created a lot of competition for the low level jobs which have been outsourced to other countries around the world and I think it's time we started adjusting that."
On how he balances employee compensation and talent who demand $5 million a year:
"We have 56,000 employees and the number who are getting $5 million is a very, very small number...Of course we want to keep them, but we have great respect for employees at all levels of the organization. We have 20,000 people working in support functions across the organization. We have thousands of people in our branch office system working as assistants to the brokers doing our business. We care about all of them, not just somebody who is making the millions of dollars. That said, you need to pay competitive to whatever the job description is."
On whether Morgan Stanley would potentially have more clients in its wealth management business if there is less income inequality:
"This is not a business issue. This is a moral and society issue. Businesses work on behalf of their shareholders with proper governance regulated by our regulators. But this is a society issue."
On why shareholders should care:
"I think shareholders have choices. There are a lot of companies out there that participate in their society and giving back in a variety of ways. At Morgan Stanley, we are very proud of the fact that we have established centers at three hospitals in the world. One in New York, One in London and one in Beijing...I think [shareholders] value that you have a moral centering."
On whether populism drives politicians and regulators to take action on the groups or businesses that it sees to be the source of inequality:
"I'm not the world's expert on what we should do from a public policy point of view. But I do think it's time, with the global economy's recovering, to take a hard look at the issue. The fact that it is front and center of the agenda at Davos -- we have the political community, the regulatory community and the corporate community, I think it is a good thing. We are having a discussion."
On having to play defense:
"You must see a part of the job that I don't have because I'm actually feeling pretty good about it. We are doing a lot of things on the offense. We pulled off probably the largest merger in financial services for the last ten years and the largest merger in wealth management in history. These are pretty on the offense type activities. I am really proud of how our employees are working together. They are on the front foot, as we say in Australia. Sure, we have had to deal with the financial crisis, but we have put a lot of that behind us."
On whether he feels like Morgan Stanley needs to be in investment banking and sales because private wealth and asset management have been such a great move:
"Those business are also great and I never start to feel that. Morgan Stanley has consistently ranked #1, #2 or #3 in global investment banking, #1 or #2 in global equities, #1 or #2 in M&A, #1 or #2 in equity capital markets. These are phenomenal businesses. They are part of our core DNA. It was what the firm was founded upon. Wealth management business is additive to what is a phenomenal world-class investment bank."
On those who obsess over the size of Morgan Stanley's fixed income business:
"Boy, they better get a life. If they're obsessing about our fixed income, I mean seriously. There's a lot of things to worry about in this world. I worry about why there isn't more snow in Davos [laughs]...Listen, we are in business of doing the right thing for our regulators, our shareholders, our employees and most importantly our clients. That is what we should obsess about. Are we doing the right thing for our clients?"
On how a regulator or shareholder or a competitor evaluate Morgan Stanley's investment banking business against the other banks:
"I think they would evaluate it pretty well. We had actually, for our size institution, a very good year. We are never going to be one of the mega rates foreign exchange businesses that the big global commercial banks are because they are serving their clients around the world. That doesn't mean that we can't have a strong fixed income commodities business. Last year was a very difficult year, absolutely. Last year was tough, but that's not the end of the story...I think this year will be better."
On the biggest area for growth in 2014:
"When the economies are recovering, the first sector to come out of that recovery is financial services. And within financial services typically, the first subsector has been investment banking and investment management and asset management. We have a lot of growth opportunity. Our equities business has been doing great. The M&A markets are coming back. In the U.S. where we have the largest percentage of our business is recovering the fastest. Wealth management is doing great. And for all of the heat on our fixed income and commodities, they're going to have a better year in 2014."
On whether he feels like saying 'I told you so' on Facebook:
"No, I would never say that [laughs]. I'm sure you had the opportunity to look at the tapes of when you guys interviewed me and were telling me about what a disaster it was, if you give it a little time, 12 months, I think it is going to turn out just fine. Now I was wrong, it took 15 months. It turned out great. The story of Facebook, which I have said consistently, forget the IPO for a minute. The IPO is just a capital markets event. The story about Facebook is that it is an amazing company. And it's an amazing piece of innovation that was created in America by some very creative, smart, daring individuals. All hats off to them. I think it's great."
On whether he uses Facebook:
"I don't use Facebook. I don't use any social media. It's all dangerous in my job."
On recruiting and retention:
"I think it's the age old question. These folks get very well paid. Even the junior people get very well paid for what they do. And it's not surprising that the job is very demanding. There have been points, obviously starting with the tragedy of the young man who passed away who actually had an illness, I believe, which has caused everybody to step back and say hey, have we got this right?"
On whether he's giving weekends off:
"I'm not sure that's the right answer because I'm not sure how you stop work if there is a deal on. I think it's more common sense and upward feedback and evaluation. If we have individuals who are not managing the young folks properly, we need to deal with that."
On whether he is seeing young people say after two years in banking that they no longer want to be in the business and the long-term outlook isn't good:
"No, I don't think they are saying that. I think people should pursue a career because they are passionate about it. And obviously the hours have to be reasonable so they can have a balanced lifestyle, otherwise they become very uninteresting advisors to companies because they bring a very narrow perspective. So, I'm all for balance but I'm also for recognizing that when there is work to be done, you get the work done."