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CNBC Exclusive: CNBC Transcript: James Gorman, Morgan Stanley Chairman & CEO, Speaks with Mary Thompson Speaks with CNBC's "Street Signs" Today

Tuesday, 10 Sep 2013 | 5:10 PM ET

WHEN: TODAY, TUESDAY, SEPTEMBER 10TH

WHERE: CNBC'S "STREET SIGNS"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Morgan Stanley Chairman & CEO James Gorman today on CNBC's "Street Signs." Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?play=1&video=3000198115. All references must be sourced to CNBC.

MARY THOMPSON: THANK YOU SO MUCH, MANDY. AS YOU MENTIONED WE'RE SPEAKING WITH MORGAN STANLEY CEO JAMES GORMAN. THANKS FOR JOINING US. AS MANDY WAS SAYING THE STOCK IS AT A TWO AND A HALF YEAR HIGH, WE'RE IN THE MIDDLE OF THE THIRD QUARTER, WHICH HAS BEEN A LITTLE WEAK ON THE TRADING SIDE PROBABLY BUT YOU HAVE BEEN PART AND PARCEL OR YOUR FIRM OF THE BIG VERIZON VODAFONE DEAL, YOU WERE BEHIND THE VERIZON BOND OFFERING, YOU DID A DEAL IN JAPAN WITH SUNTORY. IS THIS THE QUARTER WE SEE A BREAKOUT IN INVESTMENT BREAKING?

JAMES GORMAN: I DON'T KNOW THAT WE'RE AT A BREAKOUT BUT WE ARE CLEARLY AT A RECOVERY POINT. AND THANK YOU FOR COMMENTING ON THE STOCK AND WELCOME TO THE MORGAN STANLEY HEALTH CARE CONFERENCE.GREAT TO HAVE YOU HERE. LISTEN, THE TONE, THE SENTIMENT IS CHANGING. WHEN YOU SEE THE VERIZON DEAL, YOU SEE THE FINANCING THAT'S SUPPORTING THAT, YOU LOOK AT WHERE RATES ARE AT THE MOMENT, IT'S NOT SURPRISING. CORPORATE CEOs ARE GETTING READY FOR ACTION.

THOMPSON: WHAT ARE THEY TELLING YOU? WHAT ARE YOUR HEARING FROM THEM?

GORMAN: WELL I THINK THOSE WHO HAVE A STRATEGIC PLAN AND HAVE BEEN WAITING FOR ENOUGH UNCERTAINTY TO LEAVE THE MARKETPLACE TO ACT ON THAT AND NOW GETTING READY TO ACT. AND WHEN YOU CAN FINANCE TO SUPPORT THAT STRATEGIC PLAN MY ADVICE TO THEM IS GO FOR IT. LET'S NOT WAIT FOR THE PLUS OR MINUS 10 OR 15%. LET'S EXECUTE ON THE STRATEGIC PLAN.

THOMPSON: "THE WALL STREET JOURNAL" DID A BIG FRONT PAGE ARTICLE ON THE TRANSFORMATION OF MORGAN STANLEY SINCE THE FINANCIAL CRISIS TODAY AND ENDED WITH WHAT SOME MIGHT CONSIDER A RATHER CUTTING REMARK ABOUT THE FORMER WHITE SHOE INVESTMENT BANK NOW JUST ANOTHER RETAIL BROKERAGE. WHAT DID YOU THINK WHEN YOU READ THAT?

GORMAN: WELL I DIDN'T GET TO THE END OF THAT ARTICLE MARY. NO LISTEN. IT'S A WONDERFUL THING WITH NO DISRESPECT TO THE MEDIA WHEN YOU CAN TAKE ONE PERSON'S POINT OF VIEW AND HOLD IT OUT AS REFLECTING WHATEVER. I REMEMBER WHEN ONE OF OUR COMPETITORS HAD AN EMPLOYEE WRITE AN OP-ED PIECE BEING VERY CRITICALLY OF THEM. I SAID PUBLICLY I THOUGHT IT WAS RIDICULOUS. ONE PERSON'S OPINION IS JUST ONE PERSON'S OPINION. AT MORGAN STANLEY WE HAVE TRANSFORMED THE INSTITUTION BUT THE BASIS OF THAT TRANSFORMATION IS NOT JUST THE WEALTH MANAGEMENT BUILD OUT BUT IT WAS THERE SURGENCE OF OUR SECURITIES BUSINESS AND YOU LOOK AT WHERE WE ARE WITH OUR EQUITIES BUSINESS, NUMBER 1 OR 2 IN THE WORLD, INVESTMENT BANKING M&A NUMBER 1 OR 2 IN THE WORLD EQUITY CAPITAL MARKETS, 1 OR 2 IN THE WORLD, WE HAVE TREMENDOUS STRENGTH ACROSS THE WHOLE FRANCHISE.

THOMPSON: STILL YOU WOULD BET BASICALLY I THINK TO A GOOD PART YOUR OWN LEGACY I GUESS TOO EARLY TO CALL IT THAT, BUT THE BROKERAGE BUSINESS IS OBVIOUSLY AN IMPORTANT PART OF THAT. ONE OF THE AREAS WHERE YOU HAVE TO BASICALLY IMPROVE IS THE LENDING TO YOUR CLIENTS BECAUSE YOU'RE NOW ONE OF THE BASICALLY THE TENTH LARGEST BANK WITH THE DEPOSITS NOW THAT JV HAS COMPLETED FROM CITI. SO HOW DO YOU PLAN ON INCREASING THAT?

GORMAN: FIRST, WE HAVE MADE A HUGE BET ON THE BROKERAGE BUSINESS AND THE ASHES OF THE CRISIS WE WENT TO CITIGROUP TO ENTER INTO A DEAL OVER A STAGGERED PERIOD OF TIME TO BUY THE BASIS OF SMITH BARNEY, THE BALANCE OF IT, AND WE WERE FORTUNATE TO COMPLETE THAT A COUPLE MONTHS AGO. THAT GIVES US ENORMOUS BALL LAST, STABILITY, RESILIENCE OF EARNINGS SO IT IS A BUSINESS WE LOVE AND IT SUPPORTS OUR INSTITUTIONAL SIDE. AS YOU SAID IT ALSO COMES WITH $130 BILLION OF DEPOSITS WHICH MAKES US THE TENTH LARGEST BANK IN THE COUNTRY. WE'LL BE BUILDING BOTH THE CONSUMER LENDING PIECES WHICH ARE TIED TO OUR CLIENTS' ACCOUNTS, WHERE WE HAVE VERY GOOD EXPOSURE TO THEIR CREDIT POSITION, AS WELL AS THE CORPORATE LENDING TO SUPPORT OUR INSTITUTIONAL CLIENTS.

THOMPSON: 13% OF YOUR CLIENTS I BELIEVE RIGHT NOW ACTUALLY LEND OR BORROW FROM YOU. WHERE'S THE GOAL LET'S SAY IN THE NEXT YEAR? HOW HIGH DO YOU WANT THAT PERCENTAGE?

GORMAN: YOU KNOW HONESTLY NOT SO MUCH FOCUSED ON THE PERCENTAGE BECAUSE THERE ARE A LOT OF CLIENTS FOR WHOM THEY DON'T HAVE THE KIND OF LENDING NEEDS THAT WE ARE GOING TO BE PROVIDING. MORE FOCUSED ON THE QUALITY OF THE LOANS. YOU LOOK AT OUR HOUSING RESIDENTIAL MORTGAGE BUSINESS, OUR AVERAGE FICO SCORE IS OVER 750, THIS IS VERY HIGH-QUALITY PREMIUM LENDING. THAT'S THE BUSINESS WE SHOULD BE IN.

THOMPSON: I WANT TO GO BACK TO THE FINANCIAL CRISIS. IT'S THE WATER COOLER TOPIC SINCE WE'RE AT THE FIVE-YEAR ANNIVERSARY. FORMER CITI CEO SANDY WEILL WAS ON OUR AIR TODAY AND HE WAS SAYING THAT FINANCIAL REGULATION RISKS MAKING THE U.S. FINANCIAL SYSTEM INEFFECTIVE. HOW HAS IT HURT YOUR COMPETITIVENESS?

GORMAN: I THINK YOU HAVE TO PUT IT IN THE CONTEXT OF THE FINANCIAL CRISIS. IT DIDN'T JUST COME OUT OF THE BLUE. IT CAME AS A RESPONSE TO THE MOST SIGNIFICANT SHOCK TO OUR FINANCIAL SYSTEM SINCE THE GREAT DEPRESSION. THE FACT THAT WE'VE HAD A HOST OF REGULATIONS, SOME OF WHICH I THINK HAVE BEEN VERY POWERFUL AND SOME OF WHICH HAVE NOT BEEN, AND, YOU KNOW, CAN GO INTO THE DETAILS OF THOSE, BUT THE FACT THAT WE'VE HAD THAT KIND OF RESPONSE IS NOT SURPRISING. IT WAS NECESSARY. THE BANKS DIDN'T HAVE ENOUGH LIQUIDITY, THEY DIDN'T HAVE ENOUGH CAPITAL AND THEIR LEVERAGE WAS TOO HIGH. THAT'S BEEN CHANGED AN AND FOR THE BETTER. AND AS A RESULT THE BANKING SYSTEM IN THIS COUNTRY IS MUCH HEALTHIER THAN IT MIGHT OTHERWISE HAVE BEEN.

THOMPSON: I WANT TO FOLLOW UPON THAT IN A MOMENT. DO YOU THINK MORGAN STANLEY WOULD BE BETTER OFF IF GLASS STEAGALL HADN'T BEEN REPEALED?

GORMAN: I DON'T THINK IT WOULD MAKE A WHOLE LOT OF DIFFERENCE TO BE HONEST TO MORGAN STANLEY. WE WERE NEVER A MERGE COMMERCIAL AND INVESTMENT BANKING ENTITY UNLIKE SOME OF THE OTHER INSTITUTIONS AND EVEN IF WE WERE BETTER OFF I'M NOT A FAN FOR REPEALING GLASS STEAGALL. I DON'T BUY INTO THAT ARGUMENT AT ALL. IF YOU LOOK AT THE INSTITUTIONS THAT GOT INTO TROUBLE IN THE FINANCIAL CRISIS ALMOST TO AN INSTITUTION THEY WERE MONOLINE SINGLE BUSINESS MODEL INSTITUTIONS WHETHER IT'S COUNTRYWIDE, OR WHETHER IT WAS LEHMAN BROTHERS OR BEAR STEARNS, IT WAS NOT THE CONGLOMERATE COMMERCIAL INVESTMENT BANKING. THE ARGUMENT AROUND GLASS STEAGALL CAUSES I HAVE NO DOG IN THAT FIGHT BUT IT JUST DOESN'T HOLD UP.

THOMPSON: YOU SAID IN A RECENT INTERVIEW, THAT THERE IS A VERY SMALL CHANCE WE COULD SEE ANOTHER FINANCIAL CRISIS IN OUR LIFETIME. THAT'S A PRETTY BOLD STATEMENT. BUT WHAT ABOUT THE RISKS THAT MIGHT BE BEING OFFSET INTO THE SHADOW BANKING SYSTEM RIGHT NOW AND HOW DO YOU MANAGE YOUR COMPANY TO AVOID BEING IMPACTED BY ANY RISKS THAT EXIST THERE?

GORMAN: WELL HAPPILY WHAT I SAID WAS, THERE IS NEARLY ZERO CHANCE OF SEEING A FINANCIAL CRISIS LIKE THE ONE WE JUST HAD. I TRULY BELIEVE THAT. IF YOU LOOK AGAIN AT THE AMOUNT OF CAPITAL THAT IS IN THE BANKING SECTOR, THE CHANGE IN LIQUIDITY ON THEIR BALANCE SHEET AND LEVERAGE OF THESE INSTITUTIONS, TAKE MORGAN STANLEY. WE'VE DOUBLED OUR CAPITAL FROM 30 TO 60 BILLION WE'VE TAKEN OUR LIQUIDITY FROM $80 BILLION TO$200 BILLION. AND WE'VE TAKEN OUR LEVERAGE FROM 35 TIMES TO 12. THESE ARE A ONCE IN A LIFETIME SET OF CHANGES. THERE WILL BE OTHER SHOCKS IN THE FINANCIALSYSTEM, INCLUDING IN THE SHADOW FINANCIAL SECTOR, I GUESS WE CALL IT, WHICH CAN'T BE PREDICTED AT THIS POINT. THERE WILL CLEARLY BE SHOCKS AND CRISES, BUT OF THE KIND OF NATURE WE SAW, I TRULY BELIEVE THE U.S. FINANCIAL SYSTEM IS INDRAMATICALLY BETTER SHAPE THAN IT'S BEEN IN A LONG TIME.

THOMPSON: QUICKLY ONE RISKOUT THERE THAT PEOPLE SEE IS THE IMPACT ON THE EMERGING MARKETS FROM THE TAPERING THE FED IS EXPECTING TO BEGIN. HOW ARE YOU POSITIONING YOUR BANK TO HANDLE THIS? YOU HAVE EXPOSURE THERE.

GORMAN: WELL WE'VE ALWAYS HAD EXPOSURE YOU STAY WITHIN YOUR LIMITS AND MANAGE THOSE EXPOSURES AND YOU HEDGE THEM. I'M NOT PARTICULARLY CONCERNED ABOUT ANY EMERGING MARKET EXPOSURE WE HAVE ANYWHERE IN THE WORLD. WE ARE VERY CURRENT WE IN FACT HAD A RISK COMMITTEEMEETING THIS MORNING AND WE REVIEWED IT AND WE'RE VERY COMFORTABLE WITH IT. BUT I THINK YOU HAVE TO LOOK AT THE EMERGING MARKETS. IT'S NOT JUST MONETARY POLICY THAT'S AFFECTING THEM. IT'S THE IDIOSYNCRATIC FISCAL ISSUES GOING ON IN THOSE COUNTRIES. BRAZIL IS VERY DIFFERENT FROM CHINA. VERY DIFFERENT FROM RUSSIA.VERY DIFFERENT FROM INDIA AND SO ON DOWN TO THE SMALLER EMERGING MARKETS.

THOMSPON: I HAVE TO ASK YOU ONE QUESTION. LAST MONTH WE SAW THE FREEZE FLASH AT THE NASDAQ. NO FIRM OTHER THAN FACEBOOK WAS AS IMPACTED BY THE TECH PROBLEMS AT THE NASDAQ DURING THE FACEBOOK IPO THAN MORGAN STANLEY, WHAT WAS YOUR REACTION WHEN YOU HEARD ABOUT THE FREEZE FLASH AND DO YOU HAVE CONFIDENCE IN THE MANAGEMENT OF THE EXCHANGE.

GORMAN: ACTUALLY I HAD NO REACTION TO THE FREEZE FLASH YOU MIGHT BE DISAPPOINTED. WHAT I REACTED TO WASTHE PERFORMANCE OF FACEBOOK. AND I HAVE TO SAY THIS. I SAID ON CNBC A LITTLEOVER A YEAR AGO THAT WE SHOULD ALL BE A LITTLE PATIENT AND LET'S SEE HOW THIS PLAYS OUT AFTER THE MESS AT THE OPENING. AND I FELT AT THAT POINT 12 MONTHS LATER WE'D SEE THE TRUE STORY. WELL IT'S A LITTLE LONG THAN 12 MONTHS IT IS ABOUT 15 MONTHS, BUT FACEBOOK IS UP I5% SINCE THE OFFERING AND I THINK ALL CREDIT TO THEIR MANAGEMENT, TO THE GREAT COMPANY THAT IT IS. IT DESERVED THAT CREDIT AND IT'S GETTING IT.

THOMPSON: I GUESS WE HAVE TIME FOR ONE MORE QUESTION. I HAVE TO ASK YOU, WHAT ARE YOUR THOUGHTS ABOUT A FEDERAL RESERVE LED BY LARRY SUMMERS?

GORMAN: I DON'T COMMENT ON INDIVIDUALS ON THE FEDERAL RESERVE OR ANY OTHER INSTITUTION. I CARE ABOUT MORGAN STANLEY. WE WORK WITH ALL OF THE REGULATORS AND WE'LL CONTINUE TO DO SO.

THOMPSON: JAMES GORMAN, THANK YOU AS ALWAYS FOR JOINING US.

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