Morgan Stanley ( MS )’s multi-year transformation plan has been a success, CEO James Gorman said proudly today – and, as a shareholder, there’s no reason to disagree. “We have regularly de-risked the part of the business that made us in trouble during [Great Financial Crisis], and we obviously make a major push to build up wealth and asset management, and it works,” said Gorman in a CNBC interview from the World Economic Forum in Davos, Switzerland. The club is also happy, although the market does not always share our confidence in the changes that have engineered by Gorman since taking over the Wall Street bank in 2010. Under Gorman’s leadership, Morgan Stanley has pivoted to more stable profits related to wealth and asset management, which reduces its dependence on the often volatile investment banking and trading business. This strategy attracts our interest in the stock almost two years ago, believing that it will boost the value of Morgan Stanley over time – because, in general, investors give a premium. sales flow is steady. MS 6M stock performance of Morgan Stanley mountain over the past six months. Morgan Stanley’s strong quarterly results at the beginning of this week proved our ownership again. arter numbers also came in the morning they compete long Wall Stre et, Goldman Sachs (GS), reported a sizable earnings miss due, in part, to expansion into consumer banking. While declining to comment on the competition, Gorman was happy to outline what he considered to be the benefits of Morgan Stanley’s transformation. “We needed to build a business where, if the world becomes difficult again – which we only saw last year as an example – we will only search. And the way to do it is to build a stable business; it is not ‘ Whatever the market situation,” said Gorman . “Listen, for every person who buys stocks, there’s someone else who sells them. Everyone who buys bonds takes money out of cash. … There’s a constant movement of money. Our job is to be in the middle.” Acquisitions are a big part of how Morgan Stanley is working its way into the middle of that money stream. The bank took full control from wealth manager Smith Barney a decade ago. Most recently, it bought E-Trade brokerage and investment management firm Eaton Vance. With a total value of approximately $20 billion, the acquisitions closed in October 2020 and March 2021, respectively. The deal was “aggressive,” Gorman acknowledged. “We were told over and over when we bought Smith Barney and then E-Trade, and then Eaton Vance, we overpaid on all of them. My response was, ‘You’re right.’ But it doesn’t matter,” Gorman told CNBC. “Now we have a business. It doesn’t matter whether it’s plus or minus a billion dollars. What matters is in 10 years what you can do with the business.” Now we have a business. It doesn’t matter plus or minus a billion dollars. What matters is in 10 years time what you can do with the business. Morgan Stanley CEO James Gorman Economic Outlook Gorman was also asked about his thoughts on the global economy, inflation and the Federal Reserve. His outlook is relatively optimistic at a time when the consensus expectation for a US recession is mild. Gorman said he thinks 2023 will be an improvement over 2022, which was full of a slumping stock market and higher price pressures that led to a very aggressive interest rate hike campaign from the Federal Reserve. “I’m going to get better. I really am,” Gorman said. While it’s unclear what the Fed will do about rates in the coming months, Gorman said the best development is that, at the very least, US inflation has peaked. Recent government data has backed up Gorman’s claim, with price pressures cooling for consumers and wholesale producers. Another positive is what’s happening economically in China, Gorman said. While the CEO said Beijing’s decision to relax strict Covid controls was important, he emphasized more on implementing growth-oriented economic policies and easing US-China tensions. He pointed to this week’s meeting between US Treasury Secretary Janet Yellen and Chinese Vice Premier Liu He as evidence. Elsewhere in banking, JPMorgan ( JPM ) CEO Jamie Dimon told CNBC earlier Thursday that he believes the Fed may need to raise interest rates above current projections because, he thinks, “there is a lot of underlying inflation, which is not going to go away any time soon.” . . . Club takes Despite fears of a widespread recession since last year, Club has maintained confidence in Morgan Stanley. The transformation plan that Gorman mentioned in an interview Thursday shows why we not only invested but increased our position at a lower level since the stock was sold early last year. Currently, we have a rating of 2 at Morgan Stanley, which means we will wait for a pullback before buying more stocks. The stock has gained more than 10% in 2023 – helped in large part by advancing nearly 6% on Tuesday as investors cheered the bank’s earnings report. We can certainly be patient as we wait for investment banking profits to recover from a multi-quarter slump. Morgan Stanley shares yield about a 3.3% dividend, and bought back $1.7 billion in shares in the fourth quarter. The company looks set to continue buying back shares as the board in June authorized a $20 billion buyback program. (Jim Cramer’s Charitable Trust long MS. Read here for a full list of stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you will receive trade alerts before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable trust portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing a trade alert before executing a trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO THE TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH THE DISCLAIMER. No fiduciary obligation or duty is, or is created, pursuant to the receipt of any information provided in connection with the investment club. No special results or profits are guaranteed.
James Gorman, Chairman & CEO of Morgan Stanley, speaking at the Squawk Box at WEF in Davos, Switzerland on January 19, 2023.
Adam Galica CNBC
Morgan Stanley‘s (MS) multiyear transformation plan has been successful, CEO James Gorman said proudly there – and, as shareholders, we see no reason to disagree.