2 Years Before Banks 'Get Back to Normal': Morgan Stanley CEO
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It’s going to take the financial institutions a couple of years to get back to a normal cycle, Morgan Stanley CEO James Gorman told the “Fast Money” team Wednesday.
“We need to get through the political cycle here, in China, in Europe over the next 12 months. We need to get through the fiscal instability that is in Europe,” Gorman said. “We need to get through the bank reform both of the banks’ own balance sheets and of the regulation of those institutions … I think it will be 12 to 24 months before we have real clarity.”
The Fast traders were troubled that Gorman thinks it will take that long to get back to “normal.”
While Stephen Weiss thinks Gorman is one of the best CEOs in the financial community, he doesn’t like the uncertainty of what he said.
“I don’t even think if he were pushed he would tell you what the model is going to be … going forward the next year or two,” he said, “and that’s what makes it difficult for me to step into it.”
Brian Kelly agrees. “Morgan Stanley can just do fine as a company, but as an investment it’s a completely different story. I am still staying away.”
Zach Karabell thought it would be better if Gorman acknowledged that there may be a new normal in the future, instead of looking to go back do the old normal.
“It makes me anxious when someone even points to some sort of future reversion to a past model that no longer exists,” he said.
Despite the lack of clarity for the next 12 to 24 months, Morgan Stanley reported earnings for the quarter of $1.14 per share that topped analysts’ expectations Wednesday morning. But much of the beat was due to debt value adjustment.
Gorman, however, was still encouraged by the numbers.
“It’s nice to be profitable in an environment like this,” he said. “The industry, obviously, has been under tremendous stress with what’s been going on in Europe. So to see the profit we saw and see the performance across a number of the businesses, the underlying strength, I thought it was pretty encouraging.”
Gorman also talked about the big changes the company went through over the past few years, including shutting down the prop trading desk.
“We’ve taken out the end points of the risk,” he said. “We have much less capital tied up in any individual investment so we that don’t have a kind of repeat of the kinds of investment disasters that frankly happened three and four years ago.“
That prop desk was a huge area of profitability, Fast trader Jim Iuorio said.
“That is where the model has changed the most and that’s what makes them a little less attractive going forward,” he said. “But if they go back to being an investment bank—perhaps introduce prop trading—that could be a very good thing for them.”
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