Financial markets will take off once investors are confident the Federal Reserve is done raising interest rates, outgoing Morgan Stanley CEO James Gorman predicted, offering an upbeat outlook for his successor.
In a wide-ranging interview with the Financial Times days before he handed over the CEO role to Ted Beck, co-chairman of Morgan Stanley, Gorman also said the banking system had become safer during his 14-year tenure, setting aside their “stupidity.” One of the biggest threats that banks still face.
Financial markets and parts of Morgan Stanley’s investment banking business have struggled to adjust to the Federal Reserve’s aggressive campaign to stamp out inflation, and investors are now digesting mixed messages from central bank officials about when interest rate cuts will begin.
“The shock of recent interest rate increases has hampered banking deals [and] Capital markets transactions. and that is [because] “Everyone doesn’t really know what the cost of financing is,” Gorman told the Financial Times.
“The moment the Fed concretely signals that they have stopped raising rates, let alone the point at which they cut rates for the first time, these markets will take off. We are in the middle of where that action will be.”
Gorman, 65, will step down as CEO on January 1 and hand over the reins to Beck.
“I don’t want to be a CEO anymore. I loved it. I loved all of it. I’ve done it for 14 years, and that’s enough.”
The other two candidates for the top job — Andy Saperstein and Dan Simkowitz — remain as co-chairs. Gorman will also remain CEO for Beck’s first year on the job, capping an unusually smooth leadership transition on Wall Street.
“You could say Morgan Stanley is run by a management consultant and Goldman Sachs is run by traders and bankers,” one Goldman banker said, in contrast to the power struggle between David Solomon and Harvey Schwartz in the 2018 succession race at Goldman.
The smooth operation has described Gorman as a kind of succession expert. He is scheduled to join Walt Disney’s board of directors next year, where he will participate in a special succession planning committee. Disney executives and CEO Bob Iger have faced criticism from investors and governance experts for poor succession planning, with Iger returning to run the company in 2022 after his hand-picked successor lasted less than three years.
“It’s not the specific reason I’m joining their board, it will be up to the CEO and president of Disney as to how those operations work,” Gorman said. “[Succession] It is something I am very passionate about. I think about our talent management here over the decades.
Gorman, an Australian described by his colleagues as an introvert, was not a natural candidate for one of the biggest jobs on Wall Street. After becoming a senior partner at McKinsey and a stint at Merrill Lynch, he joined Morgan Stanley in 2006 and succeeded John Mack as CEO just four years later.
Gorman has grown in this role, becoming more confident in offering an opinion about the Fed’s work, casually telling investors recently that Morgan Stanley will eventually manage $20 trillion in assets, more than three times the amount it oversees. currently.
“The James Gorman we see now is not the James Gorman from his first year,” said one person who has known him for years. “James is an introvert and has become very polished.”
Morgan Stanley nearly collapsed during the 2008 financial crisis, and its future still looked uncertain when Gorman took over in 2010. He diversified his business away from investment banking and trading, activities that investors dislike because of their unpredictability, and doubled His wealth and money. Asset management, which is a more reliable business.
The boost helped Morgan Stanley’s market capitalization overtake longtime rival Goldman Sachs, which is now also trying to grow in wealth and asset management.
Gorman graded his time as CEO with an A-, saying that a higher grade would be immodest, and that choosing a lower grade would be “false modesty.”
“We’ve done well, objectively. The inventory has basically tripled.”
Gorman said new rules since the financial crisis requiring banks to hold more capital and exit riskier activities have made the system more secure, so much so that the biggest threats facing banks now are operational factors such as cybersecurity, artificial intelligence and “stupidity.” for their own management.
He said the high-profile failures of three regional US banks this year — Silicon Valley Bank, Signature Bank and First Republic — were “entirely of their own making.” He also singled out Credit Suisse, which collapsed last March and was bought by UBS, as an example of failure in operational risk management.
“It is no coincidence that it is the only institution in the world with a formal system [relevant] The institution that really failed – and it didn’t really fail from a capital, balance sheet and liquidity perspective – was Credit Suisse. They failed from an operational risk and management perspective.
Large European banks have faced difficulties since the financial crisis, allowing their American rivals such as Morgan Stanley to grow much larger, but Gorman said the coming years provide opportunities for the Europeans to close this gap.
“At one point, Credit Suisse, UBS, Barclays and Deutsche were all bigger than us. We are now about the same size as all of them combined, and for a while we were bigger,” Gorman said.
“I don “t think so [over] In the next decade the gap will be equally large. He added: “I think there are opportunities for the Europeans, but they were certainly missed during most of the last decade.”
Looking to the future, Gorman said he plans to spend more time teaching as head of Columbia Business School, but “not having a clear plan for once in my life is a good thing.”
“It’s a big world. “I haven’t spent my whole life trying to be a bank CEO,” he said. “So, I’m not going to spend the rest of my life being a bank CEO.”
“Web maven. Infuriatingly humble beer geek. Bacon fanatic. Typical creator. Music expert.”