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May 14, 2013 7:10 pm
James Gorman, chief executive of Morgan Stanley, said he sees no reason for dramatic job cuts as the bank seeks to reduce the amount of capital used by its fixed income and commodities business to boost returns for shareholders.
Mr Gorman has been revamping Morgan Stanley by placing greater emphasis on wealth management and reducing so-called “risk-weighted assets” (RWAs) to improve its regulatory capital and return more money to investors.
The strategy has sometimes confused shareholders, who see some banks shedding their fixed income businesses altogether to save on precious regulatory capital, while other banks appear to be ratcheting up their units as rivals exit.
“On the one hand Morgan Stanley does not have the critical mass of JPMorgan and, on the other hand, Morgan Stanley is not pulling back to the degree of UBS,” said Mike Mayo, an analyst at CLSA who attended Morgan Stanley's annual shareholder meeting on Tuesday. “Is the fixed income strategy working?”
Mr Gorman indicated he did not plan to significantly change the size of Morgan Stanley’s fixed income and commodities business to achieve the bank’s target of reducing RWAs to less than $200bn by 2016.
“The size is about right,” Mr Gorman told reporters at the meeting. “The problem is not the people or the business, the problem is the risk-weighted assets.”
Mr Gorman indicated that the bank could reduce RWAs by potentially selling “legacy” portfolios of older assets or simply letting them mature.
The indication that Morgan Stanley’s bond trading business will not be heavily restructured may reassure the company’s traders and bankers after a difficult year.
Mr Gorman has been reducing employee pay and deferring bonuses for senior managers to cut costs, in addition to slashing a wide swath of jobs.
“You’ve just laid out the age old dilemma for talent-driven businesses,” Mr Gorman said in response to a shareholder’s question about how the bank plans to keep talented individuals. “It’s a balancing act.”
Morgan Stanley has already decreased its RWAs to $253bn in the first quarter of this year, down 11 per cent on the end of 2012.
Mr Gorman said that he expected the bank’s return on equity – a key measure of its ability to meet its cost of capital – to hit 10 per cent in 2014 subject to capital return.
Despite posing some tough questions regarding the CEO’s strategy, shareholders voted 86 per cent in favour of Mr Gorman’s reduced pay package, which fell to about $9.75m last year. However, this was lower than the 95 per cent of shareholders who voted for the executives’ pay package in 2012.
The bank’s share price has risen more than 70 per cent in the past 12 months, but still lags behind most competitors over the time period.
One shareholder jokingly asked Mr Gorman during the question and answer session: “When the board holds your feet to the fire, do they use a blow torch or hot coals?”
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