Morgan Stanley CEO James Gorman sat down with Bloomberg Television's Erik Schatzker at the bank's headquarters in New York and said that he's "very comfortable with the headcount we have right now. These have been tough decisions."
Gorman also said that "fixed income can be a terrific business" and "we're getting there." He said that "it would be foolish to exit."
Gorman on how Morgan Stanley aggressively cuts costs without laying off more employees:
"We are very comfortable with the headcount we have right now. These have been tough decisions. No one enjoys going through a restructuring the kind we have been through and other firms on the Street have been going through. Every day, it is a different financial institution. We are down 6000 people from 12 1/2 months ago. It is pretty incredible. That's now built into our run rate of expenses. We feel very comfortable with where we are now. The run rate is now lower as a result of those people coming out."
"Firstly, it's important to note that over 80% of our employees had no deferrals at all. Honestly, that really matters. The folks that were earning obviously lower in the organization, getting the cash so they can manage their personal finances is very important to us. The senior management had 100% of deferrals, but that money gets paid out over the next six months, 12 months...It aligns our risk profile with our activities so that we have a proper alignment between our interest, our shareholders interest and our employee interest. It reflects the environment we have been operating in."
On whether he wants to be known as the toughest CEO on Wall Street when it comes to making hard compensation decisions:
"No, I'm a businessman. I'm trying to what's right to judge and balance everyone's interests here. We're a client centric organization. We're trying to reorient around our clients. We're a business that is a public company. We're trying to deliver a decent return to our shareholders. We're a business that attracts and has a tremendous talent here. I would like nothing more than to pay our talent every time for the job they're doing. We will continue to do that."
On increasing ROE:
"It is job number one. That is basically the topic of the call in about an hour."
On whether Morgan Stanley will hit 10% ROE by end of this year:
"We're not putting a time frame against it. I can't control the markets and I can't control what regulars permit and don't permit under buybacks. We are trying to lay out for investors is the building blocks. Everybody will draw their own conclusion and run their own models. We have the building blocks in place. After it a period of turmoil, a period of restructuring, a period of development, we're now pivoting to a period of growth and performance."
On whether Morgan Stanley would do what UBS is doing and exit the fixed income business:
"One, UBS is not exiting fixed income. UBS has announced they are restructuring their fixed income business. I think it would be completely foolish for Morgan Stanley to even approach that concept. We have a fixed income business that generates--in our capital markets business we do $500 million in revenues in fixed income underwriting in the last quarter alone. We manage over $300 billion of fixed income assets in our wealth management business. What would we exit? Fixed income can be a terrific business. The question is, how much capital is tied up in it...I think what we are doing, bringing down our risk weighted assets, is actually very bold."
On whether it matters how big Morgan Stanley's fixed-income business is relative to competitors:
"What is important to point out is there is no thing called a fixed-income business. Corporations just aggregate certain businesses under that title. Commodities, currencies, rates, credit, structured credit, various forms of other securitized credit. Each of those are pieces. What is important is what is appropriate for your institution. Some of the global corporate commercial banks very large foreign exchange businesses built off the back of their corporate and commercial banking activities. We have a smaller foreign exchange business. On the other hand, we have a very strong, very large credit business. You go through which of the pieces -- size is not what matters. What matters is returns."
On whether he's most optimistic about Morgan Stanley, the economy or financial markets:
"I am an optimistic guy so that is a tough one. Let's start with what really matters, the economy. We need to get people back to work in this country. What I'm optimistic about is that is starting to happen--the jobless claims, all the numbers are suggesting that. I've been bullish on the U.S. economy for several months now. I've been outspoken about it and I'm a true believer. I think consumers have deleveraged. Consumers can spend. When consumers are spending, the whole economic engine that is this marvelous, U.S. consumer-driven engine starts to get going again. I think that is happening. I am not bullish about it, but I'm positive about it."
On what clients are telling him:
"I think firstly if we just look at the numbers our equities and investment banking businesses had strong fourth quarters. Investment banking was up significantly and equities held up very well in what was a difficult environment. The sense I'm getting from CEOs is that the election is over, we understand the direction the administration is trying to go. At least we got some of the fiscal cliff steps in place. Much more to be done. We're on a better footing than we were a month ago, but we're not fully baked yet. So confidence is growing."
On whether there's any reason the Smith Barney deal won't go through:
"It's subject to regulatory approval and there is a process to go through. We're very respectful of that process. We laid out an original time plan and we are accelerating that time plan largely because we have integrated the business and we think it actually behooves us to control all of that and the earnings we are generating from that business should be going to Morgan Stanley shareholders. That's number one. Number two is, within fixed income, there are two parts of this. One is, how much capital is tied up in the business. The other is, what are you generating on that capital? We've had a lot of dead capital tied up in old risk weighted assets that were put on the books in the last decade. The team is doing a phenomenal job bringing down those risk weighted assets and therefore bringing down the capital. On the other side, we're retooling the business and trying to grow the revenue. Obviously the line is imperfect at the moment, but we're getting there."