Your earnings came out. Everybody pay attention to them.
And I heard a story you can tell. It turned out that he wants some time
ago. You're recruiting senior executives at
wealth management may not be as exciting, but over time you do better,
more steady. Is that what we saw?
No. Your stock went up 6 percent.
When? When Goldman's went down 6 percent the
same day. Well, firstly, thanks for having us.
You know, it was a good day because I told our board a couple of years ago
what I'd really like to see selfishly is a very difficult environment.
I don't want to see it for the country. I mean, it's not fair.
But but for Morgan Stanley, because I wanted to prove the business model would
do fine when things are really difficult.
And in fact, we had our second best year ever in revenues and net income.
Third best in CPS in our history. So, you know, what it proved was the
volatility, the markets business, everybody understands the volatility of
underwriting IPOs are not happening when things are very uncertain, trading and
the like. But what we proved is by having, you
know, between five and six trillion dollars of people's money under
management, that is stable. And that's that was the design 12 years
ago. And we've got there.
One thing that you said was you are planning to expand some of the wealth
management aspect of it as you cut back other parts of the business.
You acquired E-Trade, Eaton Vance. Is there another acquisition that you're
trying to target or is it going to be just sort of organic growth?
No, I think it's a mix of both. I mean, we start off with Smith Barney
14 years ago. Then we acquired a wonderful little
company in Calgary, Canada, called in, which did all the sort of workplace
stock plan businesses for a lot of the S&P companies.
Then we body trade. Then we bought Eaton Vance and we bought
Mesa West, which is another company. So we've we've been we've been building
them. And as opportunities come up, we keep we
keep acquiring those spaces. Is there room for another large
acquisition? There's always room, but we like things
that aren't balance sheet intensive. We like things that help grow scale in
spaces that we understand. And, you know, we like things when we
know what the capital picture looks like.
So, you know, at the moment, we've been quite aggressive with our buyback.
We doubled our dividend two years ago. We increased to 11 percent last year.
But we're also dealing with changing regulatory environment.
So you're managing between one of the capital demands regulators require.
How do you distributed through dividends and through buybacks?
And then what do you need to do to invest in the business?
And part of that investment, of course, is acquisitions.
So it's a multi sort of chess game that we're playing.
James used to say it was something, there were some difficulties and you
were happy that you could manage those difficulties and show that your map
model works. Some of it was highly leveraged loans
for acquisitions and things like that. Is that crimping your ability going
forward to make some of those higher leveraged loans?
Are you changing the risk calculus? No.
We've been, I would say, IRD conservative over the last two years.
In fact, it was September, I think September a year, year and a half ago
that I met with the management committee and said let's let's all just pull it in
5, 10 percent. Right.
And our RWA is a risk weighted assets actually declined at the end of the
year. So we did that.
And so within the leverage loan space, again, erred a little conservative.
But we have a large portfolio, obviously, and take some losses in these
markets within that. They're absorbed in our numbers.
But you're also generating a lot of interest income, a lot of fees on it.
So imbalance, David, I think we're reasonably well positioned, but we're
we're definitely not trying to be aggressive in this environment.
There is one high profile loan that might rain with Witter that we're going
to have to talk about, the Twitter loan that I know Morgan Stanley a lead on
that could essentially end up owning Twitter.
CAC Morgan that I've never been asked that question.
No, we could not end up owning it. Do you plan on offloading those loans or
do you just float? Firstly, Twitter's a great company.
And let's be fair, Elon Musk is is one of the greatest entrepreneurs and
business people, you know, in the last century.
And that's something that's an exaggeration.
Look what he did. Just take the boring company alone, let
alone space X, let alone Tesla. I mean, this this person has
extraordinary capabilities. Twitter is a great company.
Obviously, it's gone through restructuring, you know.
It's part of CAC. I'm not going to talk about the specific
loan position we have, but we're very comfortable with our position.
There are things we don't know about the economy going forward.
One thing that people see reasonably Covid.
The rates are going higher. Interest rates are going to be higher
than they have been in the past. How does that basic fact change your
business? How do you manage your business
differently when you got rates at four or five, six percent that have zero of 1
1/2 percent? Well, we had we had an artificial
environment. I remember when I came to the United
States, I mean, obviously, as it as an unsecured student, I wasn't a great.
IT and the bank loan reflected it. I paid 24 percent, my first mortgage was
14 1/2 percent. So we've lived in a sort of.
We've lived in a surreal world for a decade, which is the legacy of the
financial crisis. To get the economy back to where it was,
central governments around the world kept rates near zero.
Then along came Covid, which delayed what would have been a natural rise of
rates globally. Then along came the Russian invasion of
Ukraine, which further delayed. It finally turned the corner in 2022,
mid 22, when the Federal Reserve and other central banks around the world.
Not by coordination, just by need. Had to normalize rates back to neutral.
They've gone higher than that. They had to go higher in order to take
some of the fluff out the economy. So I see it as sort of a natural
consequence. I didn't think of it as particularly
alarming a natural consequence. But which parts of Morgan Stanley's
business are hurt by higher rates? Which are helped by higher rates?
Well, we benefit. Net interest income in the wealth
business. We know we manage over 300 billion
dollars of deposits. And, you know, rate rate volatility
obviously helps your macro trading businesses and foreign exchange rates.
It hurts companies trying to wanting to do deals because the cost of financing
is high. It hurts your margin loan business.
People bring down their margin loans because it's more expensive.
So there they are. It gives and gets, if you will.
But what I loved about the performance of the business last year, which again,
wasn't a record but was a great year, was that with
those gives and gets, we came out in a position of 15 per cent ROTC and
attracted over 300 billion of new money from clients here at Davos.
There seems to be an incredible amount of optimism and people have noted the
shift in tone and suddenly things seem to be moving around the corner.
And I'd ask you, though, do you think it's overplayed?
I are the most optimistic person, you know.
So why are you so optimistic? What is the optimistic look like here?
Well, you know, I've seen I've seen a lot of cycles in my career and I've seen
some really, really dark periods. You know, the financial crisis after
September 11, even though, you know, the early recessions in the US in 93, 94,
the market bust in 1870, you go back up a lot and you go back a long way.
And, you know, I think what we've been through.
If you stack up the negative stuff that happened first land war in Europe in 40
years, first global pandemic in a century, firstly, more in Europe in 70
years, first, global pandemic in a century, and highest rate increase
because of inflation in 40 years. That's a lot to throw at people.
And where are we now so bad that baiters will it be a recession?
Will it be short and shallow? Nobody's saying we go in depression,
right? Everybody is saying we can kind of deal
with this. And two things I think have changed in
the last month, which has caused this echo chamber we live in here in Davos,
where everybody's basically repeating back to each other what they've heard
from the last person. Let's be honest, I'm not hopefully, but
most people are is.
Two things have changed. Number one, the inflation numbers are
definitely there's clear evidence inflation has, in fact, peaked and is
coming down. Right.
How quickly would the Fed will get us to 2 percent and when remains the debate,
but is clearly that the slope of the line is pause.
It is terrible his favor. And the second is not just the opening
up of China, but China has embraced the rest of the world more aggressively in
the last few weeks, witnessed by the vice premier meeting with Treasury
Secretary Yellen this morning. News this morning
in a way that we haven't seen for some time.
So the big question coming out of the party, Congress and President Xi,
you know, being real reap re-elected by the Congress, was where does China go
from here? Does common prosperity mean effectively
dividing the pie up so everybody gets a piece of it or by growing the pie?
And what we're seeing is the tilt is now from divide the pie to grow the pie.
Is that mean you've got more confidence to expand in China?
We've got a we've got a very good business in greater China.
Obviously, we have a huge business in Hong Kong.
And we know we continue to have, I think on the mainland up to 1000 people in
various various functions. But no, I think we need to see a little
more clarity of Chinese policy, a little more sober discussion around global
trade relations. And, you know, right now, I think we're
certainly in a watch, but tilting more positive than we would have
been three, six months ago. We've come all the way over to
Switzerland. I'm struck at least by the fact that I
can't talk about Washington. Particular debt ceiling, lot of concern.
I hear two things. One is it's ridiculous.
And two is it would be catastrophic. What is your reaction to that?
How do you take into account the possibility of a US default?
Well, it was at. Churchill has said the Americans
eventually get it right after. You know, I can't remember trying to
find an alternative. So, you know, I'm confident that
I'm confident that politics will finally get to the right
place on this. I'm confident about that, because the
other option is just not an option. One thing at Davos, the people lost
we're talking about is the new normal for work from home.
We heard a bit of a retracement from Citigroup in an interview that David did
here with Jane Fraser. What's the new normal?
Is it coming into the office four days a week?
Is it flexible? Is it work from home or freely?
I think it's very, very specific to what you do.
You know, if you're a tax attorney who doesn't work with other teams, then
obviously you can spend a lot more time by yourself.
Does it matter if you're in office or not?
I mean, there are different kinds of jobs where I'd start with the main point
is post Koval we learnt you can function.
I read Morgan Stanley for three months from my home office, 73000 people.
So that's it's pretty remarkable. We proved you actually can do it by not
going into the office, but should you do not go to the office?
Now that clearly to me the big answer big to that is no,
we won't put the genie back in the bottle.
Five days in the office for everybody is not going to happen again.
For some people, of course. And Morgan Stanley, we're kind of
business unit by business unit. It's three or four days in the office.
My my rule has always been on this. If you're not spending a majority of
your working time in the company of your colleagues, you are missing out on
mentorship, on development, on HQ. I'm just reading the signals of being in
a meeting and watch how people, you know, handle the stresses that go on and
the, you know, the unspoken body language and so on.
So it's three or four days a week. I don't think that changes in a hurry.
Some people in some businesses are trading floors a cheek to jowl.
You go in there, they're five days a week.
So it's very business specific. But, Mike, my golden rule is don't put
the genie back in the bottle. You can't.
On the other hand, it's not a complete. This is not an employee choice.
They don't get to choose their compensation.
They don't get to choose their promotion.
They don't get to just stay home five days a week.
I want them with other employees, at least three or four days.
James, you've taken a similar response with the CEO, which are formidable,
allocating capital, making sure there are people that say you're on course.
One of the jobs is succession for every good CEO.
And we've seen it done well. We've seen it done not so well.
Couple years ago, you said maybe three more years.
How do you approach the question of succession?
How do you set it up for the good of the institution of Morgan Stanley?
Very intentionally. Firstly, you should always have a sort
of an envelope for God forbid, something horrible happens.
We've done that from a very first board meeting in January of 2010.
But more realistically, you plan a generation people who can take over.
We with Morgan Stanley have now three executive sucre to replace me.
They're all very, very talented executives.
And we're trying to fill out their skill base.
And ultimately, the board will decide who is the best qualified to run our
particular company. At this point in time, I'm extremely
intentional about it. I would definitely step down.
I'm not I'm not going to stay in this job for life.
I have no interest in that. And it's unhealthy for our organ the way
we're constructed. Right.
We've we've got to focus on what's right for Morgan Stanley.
And it's to grow the next generation. I work on a 10 year in 20 year plan in
talent planning, and that's how far out I'm thinking about it.
And, you know, I've been in this job. Well, this is my 14th year, so I've had
plenty of opportunity develop, folks. And the great news is, David, we've got
some unbelievable talent.