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CNBC Transcript: Morgan Stanley Chairman and CEO James Gorman Speaks with CNBC's "Squawk Box" Today

Friday, 21 Jun 2013 | 9:46 AM ET

WHEN: TODAY, FRIDAY, JUNE 21ST

WHERE: CNBC'S "SQUAWK BOX"

Following is the unofficial transcript of an interview with Morgan Stanley Chairman and CEO James Gorman. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000177555

All references must be sourced to CNBC.

ANDREW ROSS SORKIN: MORGAN STANLEY JUST RECEIVING REGULATORY APPROVAL TO ACQUIRE THE REMAINING 35 PERCENT INTEREST IN MORGAN STANLEY SMITH BARNEY HOLDINGS FROM CITIGROUP. AND JOINING US ON THE SQUAWK NEWSLINE IS MORGAN STANLEY CEO JAMES GORMAN AND IT COULDN'T BE A MORE IMPORTANT DAY TO HAVE YOU ON THE PROGRAM, JAMES IN PART TO TALK ABOUT THIS TRANSACTION AND IN PART BECAUSE THIS TRANSACTION IS ALL ABOUT YOUR WEALTH MANAGEMENT CLIENTS WHO ARE TRYING TO FIGURE OUT WHAT TO DO THIS MORNING. THANK YOU FOR JOINING US.

JAMES GORMAN: GOOD MORNING, ANDREW. GOOD MORNING JOE AND BECKY.

SORKIN: SO LET'S WALK THROUGH THIS REAL QUICK. YOU ARE ANNOUNCING YOU ARE BUYING THE REMAINING PIECE OF THIS FOR $4.7 BILLION IT IS GOING TO COST YOU ABOUT AN ADDITIONAL $400 MILLION IN ADDITIONAL CAPITAL, IS THAT RIGHT?

GORMAN: THAT'S RIGHT. ANDREW,THIS IS SOMETHING THAT WE HAVE BEEN WORKING ON SINCE THE ASHES OF THE FINANCIAL CRISIS IN LATE 2008. SO IT'S JUST TREMENDOUS FOR EVERYBODY WHO HAS WORKED SO HARD FOR THE LAST FOUR AND A HALF YEARS TO SEE THIS TO THE FINISH LINE.

SORKIN: AND THIS IS ULTIMATELY THE TRANSFORMATION OF MORGAN STANLEY. WHEN PEOPLE THINK ABOUT WHAT MORGAN STANLEY IS SUPPOSED TO BE GOING FORWARD OR IN THE FUTURE, THIS IS IT.NOW WE'RE HERE?

GORMAN: WELL, THERE IS NO QUESTION THAT IT'S TRANSFORMITIVE. WE'RE ATTACHING NOW ONE OF THE LARGEST AND WHAT WE BELIEVE TO BE ONE OF THE MOST POWERFUL WEALTH MANAGERS WITH ONE OF THE SINGLE BEST INVESTMENT BANKS GLOBALLY. THIS COMBINATION IS BOTH TRANSFORMITIVE AND AT THE SAME TIME BRINGS TREMENDOUS STABILITY TO OUR INSTITUTION.

SORKIN: IN THE SHORT TERM, WHAT IS THE ADDITIONAL $400 MILLION OF CAPITAL GOING TO DO TO EARNINGS?

GORMAN: THE $400 MILLION IN CAPITAL WAS APPROVED UNDER THE C-CAP PROCESS, THAT'S RELATIVELY SMALL AGAINST OUR TOTAL CAPITAL BASE, SO THAT'S FRANKLY NOT THE ISSUE. WHAT WE DO NOW IS PICKUP 35 PERCENT OF THE EARNINGS. THE FIRST QUARTER PRETEXT EARNINGS WERE APPROXIMATELY $600 MILLION. SO YOU CAN DO THE ARITHMETIC OF IT. 12 MONTHS,THAT'S VERY SIGNIFICANT.

SORKIN: HELP US THIS MORNING ON THE BIG QUESTION, FOR MOST INVESTORS – MANY OF YOUR WEALTH MANAGEMENT CLIENTS, WHICH IS NOW GOING TO BE RENAMED MORGAN STANLEY WEALTH MANAGEMENT. NO LONGER MORGAN STANLEY SMITH BARNEY. THOSE CLIENTS TRYING TO FIGURE OUT WHAT TO DO. WHAT DO YOU MAKE OF THE MARKETS AND WHAT BEN BERNANKE SAID OVER THE PAST TWO DAYS?

GORMAN: I'M IN AUSTRALIA SO I DIDN'T HEAR IT LIVE AT THE TIME. BUT OBVIOUSLY, I'VE READ AND WATCHED EVERYTHING GOING ON. YOU KNOW, FRANKLY, IT'S NOT TERRIBLY SURPRISING. THERE WAS ALWAYS AN ISSUE OF WHEN QE WOULD START TO SLOW DOWN AND ULTIMATELY DECELERATE AND REDUCE BACK TO A MORE NORMALIZED ENVIRONMENT AND THE IMPACT OF WHEN THAT HAPPENED AND THE SIGNALING FROM THE FED WAS CLEARLY GOING TO CAUSE MARKET DISRUPTION. SO I FRANKLY WASN'T VERY SURPRISED BY IT. CHAIRMAN BERNANKE, I THINK, HAS DONE A TREMENDOUS JOB AND IS NOW WEANING THE COUNTRY OFF AS WE ARE SEEING ECONOMIC RECOVERY BACK TO A MORE NORMALIZED ENVIRONMENT. THE MARKET WOULD BE SKITTISH DURING THIS TRANSITION, GIVEN WHAT WE HAVE BEEN THROUGH IN THE LAST FIVE OR SIX YEARS IS NOT SURPRISING TO ME.

SORKIN: SO THE GOOD NEWS IS GOOD NEWS. WE GOT A COMMENT FROM DAVID TEPPER EARLIER THIS MORNING THAT SAID YOU STILL HAVE TO BE IN STOCKS. IF YOU ARE A MORGAN STANLEY WEALTH MANAGEMENT CLIENT THIS MORNING LOOKING AT THIS, ARE YOU TELLING THEM TO JUMP BACK IN? YOU KNOW, TAKE ADVANTAGE OF THE DOWNWARD PRESSURE?

GORMAN: THE S&P MULTIPLE WHEN IT WAS AT 1,500 IN 2000-2001 WAS 25 TIMES EARNINGS. IN 2007, IT WAS AROUND 15, 16 TIMES. I BELIEVE IT'S AROUND A LITTLE HIGHER THAN 1,500 NOW. BUT IT'S AROUND 12, 13 TIMES SO YOU KNOW, THE MARKETS ARE NOT AS CHEAP AS THEY WERE TWO YEARS AGO, BUT I DEFINITELY THINK LONG TERM YOU SHOULD HAVE A BALANCED PORTFOLIO.THIS IS NOT A TIME WHEN FEAR SHOULD TAKE OVER. THIS IS THE LAST OF A SERIES OF HURDLES BACK THAT THE MARKETS HAVE HAD TO GO THROUGH AS THEY NOW WORK THEIR WAY BACK TO A MORE NORMAL ENVIRONMENT.

SORKIN: YOU TALKED ABOUT A BALANCED PORTFOLIO, WE'VE BEEN TALKING FOR A LONG TIME ABOUT WHETHER PEOPLE SHOULD BE IN BONDS AT ALL AS PART OF THAT BALANCE AND WHETHER THAT MAKES SENSE.DOES BERNANKE'S COMMENTS CHANGE THAT EQUATION FOR YOU AT ALL?

GORMAN: NO, I THINK YOU'VE GOT TO – FIRST OF ALL, YOU HAVE TO TAKE INTO ACCOUNT WHOSE PORTFOLIO YOU ARE TALKING ABOUT. WE DEAL WITH CLIENTS WHO'VE GOT EVERYTHING FROM SEVERAL HUNDRED THOUSAND DOLLARS UP TO SEVERAL HUNDRED MILLION DOLLARS AND DEPENDING WHAT THEIR RISK PROFILE IS AND WHAT THEIR OTHER INVESTMENT DECISION THAT THEY'VE MADE ARE,THEN CLEARLY, YOU ADJUST THE PORTFOLIO BASED UPON THAT. BUT TYPICALLY,OVERTIME, OBVIOUSLY, YOU NEED A BALANCE BETWEEN YOUR EQUITY CASH AND STOCK AND I JUST THINK, YOU KNOW, I'VE WATCHED THIS FOR A LONG TIME ANDREW, AND THE MARKETS ARE CONSTANTLY TRYING TO TIME WHERE EVERYBODY SHOULD BE. I THINK THERE IS OVERREACTION. WE'RE SEEING AN OVERREACTION RIGHT NOW. I SUSPECT IT STABILIZES. I DON'T KNOW WHAT THE FUTURES ARE TODAY, BUT I SUSPECT OVER THE NEXT FEW DAYS WE SEE A LITTLE MORE STABILITY IN EQUITIES AND WE SHOULD GIVE THE CHAIRMAN OF THE FEDERAL RESERVE HIS DUE. I THINK HE IS MANAGING A VERY COMPLICATED PROCESS, GETTING ALL OF US BACK TO A MORE NORMALIZED STATE.

JOE KERNEN: JAMES, I WAS JUST TRYING TO THINK ALL OF THE NAMES THAT ARE IN THOSE BROKERS. I CAN'T COME UP WITH ALL OF THEM. IT MUST BE E.F. HUTTON MUST BE, MUST BE A DOZEN OR SO. YOU PROBABLY CAN'T REMEMBER THE HISTORY OF EVERYONE YOU NOW HAVE UNDER THAT BANNER,DO YOU? AT MORGAN STANLEY WEALTH MANAGEMENT?

GORMAN: WELL JOE, I THINK THAT'S JOE ON THE LINE…

KERNEN: YES.

GORMAN: THERE MUST BE 40 DIFFERENT FIRMS FOR TOP OF MIND – THERE'S KIDDER, THERE'S HUTTON, THERE'S MASON, THERE'S STEVENS, DEAN WHITTER, SMITH BARNEY, SHEARSON.

KERNEN: DEAN WHITTER. SMITH BARNEY SHEARSON. I WAS JUST LOOKING AT IT IN THE CONTEXT, THE WAY YOU ARE ADDING TO THE FLEMING EMPIRE – GREG FLEMING – AND THE KAMINSKY EMPIRE, REALLY,I THINK, RIGHT?

GORMAN: WELL, WE DO HAVE GREAT LINEAGE BACK IN CNBC OF COURSE THROUGH GARY, WHICH WE ARE VERY PROUD OF.

KERNEN: AND GREG.

GORMAN: AND GREG OF COURSE.LISTEN, THERE ARE GREAT INSTITUTIONS THAT HAVE MADE UP THIS FIRM. WE ARE IN A DIFFERENT STRUCTURED INDUSTRY NOW.

KERNEN: YOU'RE NUMBER TWO?WHAT IS IT NOW? IS IT – WHO IS NUMBER ONE IN BANKING…

GORMAN: DEPENDING HOW YOU MEASURE, WE ARE ONE OR TWO GLOBALLY.

KERNEN: WITH BANK OF AMERICA MERRILL, RIGHT?

GORMAN: YOU KNOW AND UBS OBVIOUSLY IS A GREAT INSTITUTION GLOBALLY AND WELLS FARGO IS A VERY LARGE INSTITUTION, GREAT INSTITUTION ALSO. SO YOU'VE REALLY GOT FOUR FIRMS THAT ARE NOW DOMINATING THE SPACE.

SORKIN: JAMES, HOW MUCH OF THIS IS A BET ON THE STABILITY OF THIS BUSINESS RELATIVE TO THE INVESTMENT BANKING BUSINESS VS. A BET, FRANKLY, ACTUALLY, THAT THE MARKETS WILL CONTINUE TO GO UP AND THAT WE ARE IN A LONG-TERM BULLISH CYCLE AND THERE ARE GOING TO BE MORE PEOPLE WHO ARE GOING TO NEED THEIR MONEY MANAGED?

GORMAN: ANDREW WE HAD A STRATEGIC VISION WHICH WAS THAT THERE WAS A LOT OF CONNECTIVITY BETWEEN WEALTH MANAGEMENT, ASSET MANAGEMENT AND OUR INSTITUTIONAL SECURITIES AND PRODUCT ORIGINATION. SO NUMBER ONE, THE BUSINESSES FIT WELL TOGETHER. NUMBER TWO, WE SHARED A LOT OF THINGS THAT DIDN'T MAKE SENSE LIKE MSCI, DISCOVER, PROPRIETARY HEDGE FUNDS, SET OUR BUSINESSES FROM THE LIKE. NOW WE ARE TAKING NOT A BET SO MUCH ON THE MARKETS, CERTAINLY NOT THE TIMING, BUT WE ARE TAKING A LONG-TERM MULTI-DECADE VIEW THAT THE INDIVIDUAL INVESTOR WILL CONTINUE TO NEED THESE KINDS OF FULL SERVICE – BROKERAGE SERVICES WE PROVIDE – AND THIS IS GOING TO BE A VERY ATTRACTIVE BUSINESS FOR US. THE OTHER THING I POINT OUT IS WE ARE NOW,THROUGH THIS JOINT VENTURE, NOW OWNED BY MORGAN STANLEY – WILL BE BY NEXT FRIDAY I BELIEVE – 100 PERCENT CLOSED. WE WILL BE THE TENTH LARGEST BANK IN THE COUNTRY, WITH ABOUT $135 BILLION IN DEPOSITS. THAT IS A PHENOMENAL ASSET TO HAVE AS PART OF OUR INSTITUTION ON BEHALF OF OUR CLIENTS.

BECKY QUICK: HEY JAMES, I KNOW OBVIOUSLY THIS IS A LONG-TERM BET ON RETAIL INVESTORS, BUT HAVE YOU BEEN SURPRISED BY RETAIL INVESTORS' RELUCTANCE TO GET BACK INTO THINGS DESPITE THE CLIMBING STOCK MARKETS AFTER WHAT HAPPENED BACK IN 2008 AND 2009?

GORMAN: YOU KNOW BECKY, AFTER ALL THE SCAR TISSUE THAT'S BEEN BUILT UP IN '08 AND '09, NOTHING REALLY SURPRISES ME. THE THING I HAVE BEEN MOST SURPRISED ABOUT IS MONEY HASN'T BEEN TAKEN OUT OF THESE FIRMS. IT'S JUST BEEN KEPT IN CASH AND KEPT IN VERY LIQUID POSITIONS AS PEOPLE TRY TO DIGEST IS THIS RECOVERY FOR REAL? AND I WOULD TELL YOU, FOR MY MONEY, THE U.S. RECOVERY IS FOR REAL. THERE IS A REASON THE FEDERAL RESERVE IS TAPERING. THERE IS A REASON THE RATES ARE GOING TO RISE AND THAT IS BECAUSE WE ARE SEEING FUNDAMENTAL ECONOMIC GROWTH IN THE LARGEST ECONOMY IN THE WORLD. THAT IS GOOD NEWS. DESPITE ALL THE MARKET TURMOIL, THAT'S THE FUNDAMENTAL THAT'S GOOD NEWS.

SORKIN: JAMES, A FINAL QUESTION. YOU KNOW, FOR MOST OF MY CAREER COVERING WALL STREET, THERE HAS BEEN A JOCKING BETWEEN GOLDMAN SACHS AND MORGAN STANLEY. THOSE WERE THE TWO FIRMS THAT YOU PUT IN THE SAME SENTENCE. GIVEN THE TRANSFORMATION THAT YOUR FIRM HAS UNDERGONE NOW WITH THE COMPLETION OF THIS TRANSACTION, DOES THAT CHANGE? WHO DO YOU COMPARE YOURSELF TO AFTER THIS?

GORMAN: WELL, OBVIOUSLY, OUR FRIENDS DOWNTOWN, IS A TERRIFIC INSTITUTION AND WE COMPETE WITH THEM ACROSS THE WRATH OF BUSINESSES. WE NOW HAVE BUILT OUT A WEALTH MANAGEMENT BUSINESS WHICH MAKES UP, TOGETHER WITH ASSET MANAGEMENT, ALMOST HALF OF OUR FIRM. IN NO WAY DOES THAT DIMINISH OUR INSTITUTIONAL SECURITIES, OUR M&A, OUR IPO FRANCHISE, OUR DEBT AND EQUITY CAPITAL MARKETS, OUR GREAT EQUITIES BUSINESS AND OUR FIXED INCOME BUSINESSES. SO WE COMPETE WITH THEM AS WE DO WITH MANY OF THE OTHER INSTITUTIONAL HOUSES ACROSS A BROAD RANGE, BUT WE ALSO HAVE THE BALANCE AND THE STABILITY THAT WEALTH MANAGEMENT BRINGS TO US. WE LIKE OUR BUSINES SMODEL. WE DON'T TRY AND IMITATE OTHERS. WE TRY AND DO WHAT'S RIGHT FOR US.

SORKIN: OK. JAMES GORMAN,THANK YOU FOR CALLING IN THIS MORNING BOTH WITH THIS NEWS AND YOUR PERSPECTIVE ON THE MARKETS.

GORMAN: PLEASURE. GOOD LUCK.THANK YOU ALL.


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