WHEN: TODAY, WEDNESDAY, MARCH 7
WHERE: CNBC'S "Closing Bell" – Live from Morgan Stanley's Executive Women's Conference
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Morgan Stanley Chairman & CEO James Gorman and CNBC's Wilfred Frost on CNBC's "Closing Bell" (M-F 3PM – 5PM) from Morgan Stanley's Executive Women's Conference today, Wednesday, March 7. Following is a link to video from the interview on CNBC: https://www.cnbc.com/video/2018/03/07/morgan-stanleys-gorman-markets-screaming-for-turmoil.html?play=1.
All references must be sourced to CNBC.
BILL GRIFFETH: BY THE WAY, TODAY IS MORGAN STANLEY'S EXECUTIVE WOMEN'S CONFERENCE HERE IN NEW YORK CITY WHERE WE ARE EXPECTING FOOT OF SNOW. THE APTLY NAMED THEREFORE WILFRED FROST IS THERE NOW. YOU SEE WHAT I DID THERE? HE'S JOINED BY MORGAN STANLEY CHAIRMAN AND CEO JAMES GORMAN. WILF.
WILFRED FROST: THAT'S RIGHT, BILL, FROSTY THE SNOWMAN HERE. BUT, WE ARE DELIGHTED TO BE JOINED BY THE CHAIRMAN AND CEO OF MORGAN STANLEY, JAMES GORMAN. JAMES, THANKS FOR HAVING US.
JAMES GORMAN: THANK YOU.
FROST: SO MUCH TO TALK ABOUT, INCLUDING YOUR EXCELLENT 2018 RESULTS AND THE MARKET VOLATILITY, BUT LET'S START WITH THE REASON WE'RE HERE SPECIFICALLY, EXECUTIVE WOMEN'S CONFERENCE. WHAT DOES THIS CONFERENCE, WHICH IS THE TENTH YEAR OF IT, REALLY ACHIEVE FOR YOUR FEMALE EXECUTIVES? AND ARE YOU CONTENT TODAY WHERE YOU STAND WITH THE BALANCE BETWEEN MALE AND FEMALE EXECUTIVES AT MORGAN STANLEY?
GORMAN: WELL, THE CONFERENCE, ITSELF, IS ACTUALLY EXTERNAL. WE INVITE SEVERAL HUNDRED LEADING EXECUTIVE WOMEN FROM COMPANIES AROUND THE COUNTRY TO COME HERE TO SHARE IDEAS, TO TALK ABOUT THE MARKETS, TALK ABOUT THE KINDS OF BUSINESS CHALLENGES YOU HAVE AS CEOs OR C-SUITE OFFICES, AND GIVE THE FOLKS A CHANCE TO NETWORK. WE'RE, OBVIOUSLY, WE HAVE A LOT OF OUR FEMALE EXECUTIVES HERE AS WELL, AND IT WORKS REALLY WELL. WE'VE DONE IT TEN YEARS, AND, YOU KNOW, I'TS ALL PART OF MORGAN STANLEY'S EFFORT TO IMPROVE OUR DIVERSITY OUTREACH, BOTH WITH OUR CLIENT BASE AND INTERNALLY.
FROST: AND AS WE SIT HERE INTERNALLY, WE'RE AT A STAGE WHERE GENDER EQUALITY IS AT THE FOREFRONT OF PEOPLE'S MINDS.
GORMAN: SURE.
FROST: PERHAPS MORE THAN IT HAS BEEN FOR A WHILE. SO MUCH SO THAT SOME GOVERNMENTS LIKE THE U.K. HAVE LEGISLATED TO FORCE COMPANIES LIKE YOURSELF TO PUBLISH THEIR RAW DATA OF PAY BETWEEN MEN AND WOMEN WHICH YOU'LL HAVE TO DO FOR YOUR U.K. EMPLOYEES BY APRIL 2018. – EXPOSE IN THE U.S. AS WELL?
GORMAN: SURE, I HAVE – DON'T HAVE A PROBLEM WITH THE TRANSPARENCY. I MEAN, THE FACTS ARE THE FACTS, AND ALL OF US IN MANAGEMENT ARE TRYING TO IMPROVE THE DIVERSITY ACROSS THE ORGANIZATION. I THINK, YOU KNOW, HONESTLY, WE'VE STARTED LOOKING AT THOSE NUMBERS, AND THEY WILL BE PUBLISHED OVER THE NEXT SEVERAL WEEKS, THEY ARE FINE. THAT'S NOT THE ISSUE. THE ISSUE IS WHAT DOES IT TAKE TO INCREASE THE NUMBER OF WOMEN MOVING INTO SENIOR EXECUTIVE, MANAGING DIRECTOR ROLES ACROSS THE FIRM, LEADERSHIP ROLES AND HOW DO WE DO THAT? IT TAKES A LONG TIME TO GROOM FOLKS, SO YOU CAN'T JUST FLIP A SWITCH AND BE DONE. THIS YEAR 25% OF OUR NEW MANAGING DIRECTORS WERE WOMEN. IS THAT ENOUGH? NO, ITS NOT. IT'S NOT WHERE WE WANT TO BE, BUT WE'RE MAKING PROGRESS.
FROST: LET'S SWITCH FOCUS AND TALK ABOUT THE MARKETS. WE'VE SEEN A SELLOFF AGAIN OVER THE LAST WEEK, INCLUDING TODAY. LARGELY BECAUSE WE'VE SEEN TARIFFS IMPOSED BY THE PRESIDENT ON STEEL AND ALUMINUM IMPORTS FROM AROUND THE REST OF THE WORLD. WE EXPECT TO GET THAT SIGNED TOMORROW NOW IS THE LATEST REPORTING. WHAT WAS YOUR TAKE WHEN YOU HEARD THE NEWS?
GORMAN: WELL FIRST OF ALL THE MARKETS HAVE BEEN SCREAMING FOR TURMOIL, RIGHT. WE'VE NEED VOLATILITY, SO THE FACT WE'RE HAVING SOME IN THE LAST SEVERAL WEEKS DOES NOT BOTHER ME AT ALL. TARIFFS, I THOUGHT IT WAS A BAD IDEA. I MEAN, TO BE BLUNT. I'M, YOU KNOW, THE BIGGEST ISSUES THIS COUNTRY FACES ARE NOT TRADE DEFICITS, THEY'RE FISCAL DEFICITS. AND I THINK WHAT, YOU KNOW, WHAT WE NEED TO BE DOING IS FOCUSING ON THE REAL ISSUES HERE. AND LISTEN, YOU CAN ALWAYS ENTER INTO A TRADE WAR, BUT DOING IT WITH ALLIES, DOING IT WITH COUNTRIES WE SELL A LOT OF GOODS TO, THAT'S NOT NECESSARILY THE BEST WAY TO MOVE FORWARD. SO, I WAS NOT A FAN OF THIS. I'M A GLOBAL – YOU KNOW, I BELIEVE IN GLOBALIZATION. I THINK IT'S HELPED THE U.S. ECONOMY, AND HOPEFULLY, IT WILL BE MODERATED OVER 24 HOURS.
FROST: YOU MENTIONED ALLIES WERE INCLUDED IN THIS. DID YOU FEAR RETALIATION FROM THEM OR OTHERS?
GORMAN: I THINK THERE'S GOING TO BE, WILFRED. I MEAN, YOU CAN'T BE UNILATERAL IN THESE THINGS. I MEAN, THE WORLD, FOR ALL THE CONCERN ABOUT THE LEVEL OF IMPORTS THAT WE'RE DOING, YOU KNOW, LOOK AT THE EXPORTS. IT'S – WE'RE IN A NET SURPLUS ON SERVICES, FASTEST GROWING PART OF THE ECONOMY. NET DEFICIT ON CERTAIN GOODS IN CERTAIN SECTORS, SO, YOU KNOW, I TRY TO TAKE THE BIGGER PICTURE AND, SURE, IF YOU -- YOU KNOW, PEOPLE CAN'T PICK AND CHOOSE. ONCE YOU PUT IN SOME TARIFFS, THEY WILL RESPOND, WHETHER THEY ARE FRIEND OR FOE.
FROST: DOES THAT UNDO THE GOOD WORK THE ADMINISTRATION HAS DONE ON THE ECONOMY? DOES IT OUTWEIGH IT?
GORMAN: YOU KNOW, I DON'T – I DON'T THINK SO. NO. I DON'T THINK SO. I THINK, YOU KNOW, THE ECONOMY'S OBVIOUSLY DOING WELL. WE SAW THE ADP JOB NUMBERS THIS MORNING, I THINK 230,000 AND CHANGE. THE ECONOMY IS DOING – WE'RE GOING TO HAVE A THREE HANDLE ON UNEMPLOYMENT. WHAT WE NEED IS SOME WAGE INFLATION. WE NEED A BROADER PART OF THE POPULATION TO PARTICIPATE IN THIS ECONOMIC GROWTH THAT'S GOING ON AT THE IN A MOMENT, SO, NO, DO THE TRADE WARS SPECIFICALLY UNDERMINE IT? NO. BUT DO THEY CREATE A LEVEL OF UNCERTAINTY UNNECESSARILY IN THE MARKET? THEY DO.
FROST: WHAT DO YOU THINK ABOUT GARY COHN'S DEPARTURE? CLEARLY HE'S A MEMBER OF THE ECONOMIC TEAM THAT OPPOSED THIS SORT OF PROTECTIONIST MEASURE. YOU WORRIED THAT'S HE'S NO LONGER THERE?
GORMAN: YOU KNOW GARY'S A VERY TALENTED GUY, A GOOD GUY. THERE'S A LOT OF TALENTED PEOPLE IN THE COUNTRY. SO SPECIFICALLY DO I WORRY THAT, IF, YOU KNOW, IF YOU PULL ONE PERSON OUT OF THE TEAM? NO. I DON'T. THAT'S NOT REALLY THE ISSUE. AND, YOU KNOW, IF YOU'D LISTEN TO THE PRESIDENT'S CAMPAIGN SPEECHES, YOU KNEW THAT THIS WAS COMING. THIS CANT BE A SURPRISE TO ANYBODY. IT'S JUST A QUESTION OF HOW BROADLY BASED IT WAS AND IT'S OBVIOUSLY RELATIVELY NARROW AT THE MOMENT. SO, NO, I'M NOT PARTICULARLY PHASED BY THAT.
FROST: GARY'S A FREE AGENT NOW. WOULD YOU BE LOOKING TO HIRE HIM? AND, PERHAPS IT WOULD HELP YOU TAKE ON HIS FORMER EMPLOYEES, YOUR BIG RIVALS, GOLDMAN SACHS?
GORMAN: NO. I LIKE GARY, BUT, NO. I'M VERY COMFORTABLE WITH OUR TEAM, THANK YOU VERY MUCH.
FROST: FAIR ENOUGH. LET'S TALK A LITTLE BIT ABOUT THE MARKETS. I MEAN, I'M INTERESTED, YOU SAID IN THE TOP THERE, THAT YOU REALLY WERE'NT WORRIED AT ALL ABOUT VOLATILITY. I MEAN, THERE'S VARIOUS HEAD WINDS, WHETHER IT'S RISING RATES OR PROTECTIONISM. YOU'RE NOT CONCERNED ABOUT ANOTHER BIG CORRECTION LIKE WE HAD RECENTLY?
GORMAN: YOU KNOW, YOU'VE GOT TO PUT IT IN CONTEXT. THESE ARE -- WE'RE DEALING WITH GLOBAL MARKETS, RATES ARE RISING, COMMODITIES HAVE RECOVERED AFTER A VERY DIFFICULT PERIOD, THE EQUITY MARKETS ARE EXPENSIVE – I DON'T THINK THEY'RE RIDICULOUS, I THINK THEY'RE EXPENSIVE. YOU'VE GOT GLOBAL SYNCHRONIZED GROWTH GOING ON AT THE MOMENT, VERY LOW INFLATION. THE U.S. AND EUROPE, AND THEN JAPAN WILL ALL START MOVING TO A NORMALIZATION MONETARY POLICY. YOU'VE GOT TO EXPECT SOME VOLATILITY WITH THIS WITH THIS. WITH THE VIX UNDER TEN FOR A SIGNIFICANT PERIOD OF TIME, THAT WAS UNNATURAL. WE WERE AT AN UNNATURALLY PASSIVE FOR A PERIOD OF TIME. DO I CARE ON A WEEK-TO-WEEK BASIS? NOT REALLY. DOES IT MATTER WHAT THE STIMULUS IS FOR THE VOLATILITY? NOT PARTICULARLY. WHAT MATTERS IS LONG TERM ECONOMIC POLICY, AND I GET BACK TO FISCAL RESTRAINT.
FROST: WHEN YOU TALK ABOUT YOUR UNDERLYING CLIENTS, WHETHER THEY'RE COMPANIES OR INDIVIDUALS, IS THERE A LEVEL OF INTEREST RATES HERE IN THE U.S. THAT YOU WORRY ABOUT WOULD START TO IMPACT THEM? -- ASIDE FROM THE MARKET VOLATILITY THAT WOULD REALLY HURT THE ECONOMIC PERFORMANCE OF THIS NATION.
GORMAN: WELL, EVENTUALLY, THERE IS, BUT WHEN I CAME TO THE U.S., INTEREST RATES WERE 15% WHEN I WAS BORROWING AS A STUDENT, SO, YOU KNOW, WE'RE A LONG WAY FROM NORMAL INTEREST RATES. THAT'S WHAT I -- NOT QUITE UNDERSTOOD THE ANXIETY ABOUT RAISING RATES TO BEING NORMAL. BEING NORMAL GIVES THE FED A TOOL TO RESPOND IF AND WHEN WE GO INTO ANOTHER -- WHEN WE GO IN ANOTHER RECESSION, NOT IF. THERE ARE ECONOMIC CYCLES WITH THAT, WITH CERTAINTY. SO DO I WORRY ABOUT THESE LEVELS? NOT AT ALL. WE SHOULD, IN MY VIEW THERE SHOULD BE FOUR RATE INCREASES THIS YEAR, THERE MAY NOT BE, IT MIGHT BE THREE, BUT CLEARLY RATES ARE INEXORABLY GOING UP, AND EVERYBODY SHOULD BE AWARE OF THAT.
FROST: IN TERMS OF THE DEREGULATORY ENVIRONMENT, WE HEARD FROM RANDY QUARLES, THE VICE CHAIR FOR SUPERVISION. EARLIER THIS WEEK, THAT HE WAS LOOKING TO MAKE, QUOTE, MATERIAL CHANGES TO THE VOLCKER RULE, THAT'S SOMETHING YOU MUST PRESUMABLY WELCOME.
GORMAN: MIXED. I THINK WHAT HE WAS TALKING ABOUT, AND I ACTUALLY HAVE NOT READ THE SPEECH, BUT I'VE TALKED TO THE GOVERNOR QUARLES A COUPLE OF TIMES, AND I THINK WHAT HE'S FOCUSED ON IS THE DIFFERENCE BETWEEN TAKING PRINCIPLE RISK AND MAKING MARKETS, AND TAKING PROPRIETY RISK AND LOCKING IN YOUR CAPITAL IN VERY LIQUID POSITIONS, WHETHER THEY BE PROP INVESTING OR PROP TRADING. AND I THINK ROLLING BACK THE PROP INVESTING PROP TRADING CONSTRAINTS WOULD BE A BAD IDEA. THAT'S WHERE THE BANKS GOT IN TROUBLE. HOWEVER, ALLOWING THE BANKS MORE FREELY TO MAKE MARKETS, TAKE PRINCIPLE POSITIONS ON – IN THE SUPPORT OF FACILITATING TRADING ACTIVITY FOR THEIR CLIENTS IS ESSENTIAL. AND RIGHT NOW, THE WHOLE, I FORGET WHAT THEY CALL THE PROCESS, BUT THE SORT OF ATTESTATION PROCESS, I THINK IT'S CALLED, IS EXTRAORDINARILY CUMBERSOME AND DETAILED, AND I THINK THERE ARE FIVE REGULATORY AGENCIES THAT ARE OVERSEEING THIS, AND WHAT GOVERNOR QUARLES IS ARGUING FOR IS A SIMPLIFICATION OF THAT. NOT, I BELIEVE, AN UNWINDING OF THE PROP INVESTMENT PROP TRADING.
FROST: WHEN WE TALK ABOUT DEREGULATION, IT'S SOMETHING EVERYONE IS ASSUMING APPLIES TO BANKS. WHEN WE GOT THE RULES FOR THE NEXT SET OF THE CCAR STRESS TEST, WERE YOU TAKEN BACK A LITTLE BIT? MANY PEOPLE SAYING THOSE TESTS WERE HARDER THAN THEY'VE BEEN BEFORE, AND WHEN YOU ADD THAT TO SORT OF THE PUNISHMENT THE FED HAS PLACED ON WELLS FARGO RECENTLY, DO YOU THINK THINGS ARE ACTUALLY GETTING TOUGHER?
GORMAN: WELL, I DON'T WANT TO SPEAK ABOUT, YOU KNOW, ONE OF THE OTHER INSTITUTIONS, BUT ON THE TESTS, WHAT THE RULE – RULES DIDN'T CHANGE. WHAT THE TESTS HAVE PREDICATED UPON IS SCENARIO PLANNING IN DIFFERENT ECONOMIC STRESSES. TRYING TO MIMIC, IF YOU WILL, 2008 OR SOMETHING WORSE. IN FACT, WHAT THE TESTS ANTICIPATE IS SOMETHING MUCH WORSE. THE WAY DODD-FRANK IS WRITTEN AS I UNDERSTAND IT IS THAT THE TESTS HAVE TO GENERATE UNEMPLOYMENT RATE OF 10%. IF YOU ARE AT 8.5%, YOU NEED A RELATIVELY MODEST SHOCK TO THE ECONOMY FOR THAT TO OCCUR. IF YOU ARE 4.1%, YOU NEED THE MOTHER OF ALL SHOCKS FOR THAT TO OCCUR, AND IT HAS TO HAPPEN QUICKLY. THAT SHOCK TO THE SYSTEM WHICH WAS PUT IN THIS YEAR'S SCENARIO BECAUSE UNEMPLOYMENT IS SO LOW, BUT YOU'VE STILL GOT TO HIT A 10%, IS WHAT CAUSED THE SCENARIOS TO BE EXTREMELY TOUGH. THEY'RE GOING TO BE TOUGHER THIS YEAR THAN THEY'VE BEEN FOR SEVERAL YEARS. THAT'S NOT SOMETHING I THINK IS A POLICY OBJECTIVE OF THE FED. THAT'S AN OUTCOME OF THE LEGISLATIVE REQUIREMENT. THAT NEEDS TO BE ADDRESSED.
FROST: JAMES, WHEN WE TALK ABOUT YOUR FIRM'S TARGETS THAT YOU JUST RECENTLY RESET AFTER 2017 FULL YEAR RESULTS, A LOT OF THE ANALYSTS HAVE SAID YOU'D BEEN UNAMBITIOUS OR YOU'VE UPPED TO 10-13, BUT YOU'RE ALREADY CLOSE TO THE LEVELS AND THERE'S VARIOUS TAILWINDS COMING FORWARD. ARE YOU SETTING YOURSELF EASY TARGETS SO YOU CAN BEAT THEM?
GORMAN: OH, WILFRED, WHY ON EARTH WOULD WE DO THAT? NO. WE DO WHAT'S REALITY. FOR -- I'M IN MY NINTH YEAR IN THE JOB. FOR EIGHT YEARS, EVERYBODY SAID, WHEN WILL YOU EVER GET TO 10%, GORMAN? AND THEY BANG AWAY EVERY QUOTE, GET TO 10%. GET TO 10%. LAST YEAR WE WERE AT 9.4%. NOW WE'VE SAID, WE WON'T GO BELOW 10% I THOUGHT PEOPLE WOULD BE APPLAUDING. BUT, LISTEN, YOU CAN'T PLEASE EVERYBODY ALL THE TIME. NO, THEY'RE NOT UNAMBITIOUS. THE WEALTH MANAGEMENT MARGIN, WE PUT OUT 26%-28%. IN THE HISTORY OF WEALTH MANAGEMENT BUSINESSES IN BROKEN DEALERS, I BELIEVE THERE HAS BEEN ONE FIRM EVER THAT HAS GENERATED A MARGIN AT THAT LEVEL, EVER. SO UNAMBITIOUS IT IS NOT.
FROST: FAIR ENOUGH. YOU MENTIONED EIGHT OR NINE YEARS IN THE JOB. JAMIE DIMON HAS JUST SAID HE WANTS FIVE MORE YEARS. IS THAT ABOUT HOW MANY YOU WANT?
GORMAN: I'M NOT GETTING INTO SUCCESSION PLANNING, AS MUCH AS I ENJOY YOUR COMPANY HERE, WILFRED. NO. BUT, NO, I'M CERTAINLY NOT LEAVING ANY TIME SOON.
FROST: AND TO WRAP IT UP, ON THE TOPIC OF ECONOMIC NATIONALISM, WE TOUCHED ON THE FINER POINTS OF IT, BUT AS AN AUSTRALIAN THAT'S BEEN WELCOMED HERE AND BECOME A CITIZEN, DO YOU TAKE PERSONAL OFFENSE FROM THE TONE OF ECONOMIC NATIONALISM AND PROTECTIONISM?
GORMAN: LISTEN, YOU'VE GOT TO TAKE THE POLITICAL RHETORIC SOMETIMES AND JUST PUT IT IN A LITTLE JAR. THIS IS A PHENOMENAL COUNTRY. IT HAS BEEN THROUGH ITS HISTORY, EXTREMELY WELCOMING TO IMMIGRANTS. I WAS A MASSIVE BENEFICIARY OF THAT, AND I BELIEVE THAT THE MORE OPEN YOUR MARKETS ARE, THE MORE OPEN YOU ARE IN EMBRACING TALENT COMING IN, THE BETTER OFF YOU ARE IN THE LONG RUN. THE SHORT TERM POLITICAL RHETORIC AROUND CLOSING DOWN SOME OF THOSE BECAUSE OF EXCESS, OF COURSE, THERE'S SOME PEOPLE – YOU KNOW, AT SOME POINT, YOU GET TOO MUCH OF A GOOD THING. IF THE IMMIGRATION DISTORTS SOCIETY. I DON'T THINK WE'RE REMOTELY CLOSE TO THAT, AND I HOPE AND PRAY THAT THE U.S. WILL REMAIN, YOU KNOW, LITERALLY AS REAGAN WOULD SAY, A BEACON ON THE HILL. THAT'S WHAT IT WAS AND WHAT IT WAS WHEN I CAME HERE.
FROST: WELL, I DO TOO. JAMES, THANK YOU VERY MUCH FOR YOUR TIME TODAY. IT'S BEEN A PLEASURE SPEAKING WITH YOU.
GORMAN: THANKS WILFRED.
FROST: JAMES GORMAN, THE CHAIRMAN AND CEO OF MORGAN STANLEY. GUYS, BACK TO YOU AT THE STOCK EXCHANGE.
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