WHEN: Today, Thursday, June 27, 2019
WHERE: CNBC's "Squawk on the Street" – Live from Morgan Stanley's Senior Multicultural Leaders Conference
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Morgan Stanley Chairman and CEO James Gorman and CNBC's Wilfred Frost on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Thursday, June 27th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/06/27/morgan-stanley-ceo-james-gorman-on-trade-the-fed-and-more.html.
An additional piece of the interview will air on CNBC's "Closing Bell" (M-F 3PM – 5PM) later today. Extended transcript to follow.
All references must be sourced to CNBC.
DAVID FABER: Alright Time for us to get to the interview we have been discussing, of course: CEO and Chairman of Morgan Stanley James Gorman. He is with Wilfred Frost at the Morgan Stanley Multicultural Conference. Wilfred, over to you.
WILFRED FROST: David, thank you very much. And James, thank you very much for having us.
JAMES GORMAN: Great to be here. Thank you for joining us.
WILFRED FROST: So, we are here at your fourth annual Senior Multicultural Leaders Conference. Tell us a little bit about what the day is and what you hope to achieve.
JAMES GORMAN: Well it's an idea Carla Harris, who was on "Squawk" this morning really thought up – brought this up about four years ago. And it's to bring together multicultural leaders, but very senior c-suite, to talk about ideas, network, create opportunities, look for investment opportunities. And we bring a bunch of Morgan Stanley's research markets-based people together with a lot of outside executives. It's been a home run. She has done an unbelievable job.
WILFRED FROST: Carla – Carla, as you said, was on "Squawk Box" this morning. I was interested that she said this is the fourth year and every single year has been sold out with a big waiting list.
JAMES GORMAN: Yeah.
WILFRED FROST: I mean, to what extent does that show how keen people are to find better opportunities to address some of the headwinds that some minorities face, and the lack of opportunities they have to address it?
JAMES GORMAN: Well, I mean, it's endless right now. There is tremendous, tremendous demand. And unfortunately, there just aren't many opportunities to showcase. And this is one of them. I don't know if Carla mentioned it, but she set up a venture lab where multicultural firms, startups, can come and be part of Morgan Stanley for a summer period. We provide them with all sorts of resources, a little bit of financing and then they go off and we present them to the marketplace. We have ten firms coming through this summer. They had 300 applications for it.
WILFRED FROST: Are you -- wow, 300 applications.
JAMES GORMAN: Yeah.
WILFRED FROST: Are you content with the level of diversity at the top of Morgan Stanley?
JAMES GORMAN: I mean, when you are content – you are content when your organization reflects the society you are in. And it doesn't yet. But we have made strides. We have a really diverse team relative to ten years ago when we started. We've got, this year, I think 28% of our managing directors were women. We have now got over 20% of the whole firm managing directors are women. When we started a few years ago, it was around 15%. So, we have made strides. But, listen, there is more to do. And what Carla is doing and what the team is doing is a great initiative to say Morgan Stanley is really serious about this.
WILFRED FROST: I want to move on James, and talk a little bit about the macroeconomic outlook. G20 has just kicked off, as you know. How important is it that the U.S. and China don't escalate trade tensions further from where they are already over the weekend?
JAMES GORMAN: I thought you were going to ask me how come Australia beat England in the World Cup. But I guess not.
WILFRED FROST: Well, I'd be—despite losing, I would be happy to talk about the Cricket World Cup at length, but I know I would be fired if I do that. So—
JAMES GORMAN: Oh, so should talk about U.S. and China instead?
WILFRED FROST: Exactly.
JAMES GORMAN: Alright, let's talk about U.S. and China. Listen, I was just in China couple of weeks ago, and I was in a meeting with Lighthizer in D.C. a week or two before that. You know, we need a solution to this. There have been some trade disparities between the countries. But the U.S. and China account for over 40% of global GDP. Nominal GDP is about $70 trillion. The U.S. and China combined are $30 trillion. We can't have a trade war. It will have a devastating effect to the global economy. That doesn't mean there can't be changes to the way the trade agreements are being written and I think that's what the negotiators are figuring out.
WILFRED FROST: What did you learn from Ambassador Lighthizer? Do you think we are back to square one? Or are we close?
JAMES GORMAN: This was -- let's see, this was probably five or six weeks ago. You know, it's a process. I don't -- there is not going to be an arrival – it's like the kid in the back seat of the car, 'Are we there yet?' 'Are we there yet?' 'Yeah, now we're here.' No, it doesn't work that way. This is going to go on, these discussions, I think, for a decade. This is a resetting of a relationship with what is now the second largest economy in the world. China is a $12 trillion company with all of its trading partners. So, this is not going to be solved by a beating with President Xi and President Trump at the G20 meeting. It's a resetting. There will be many steps. And I think everybody understands that.
WILFRED FROST: Is it fair to say the U.S. economy has been relatively resilient in the face of that, and do you expect that to continue?
JAMES GORMAN: The economy has been resilient. The markets have been much more fragile. You know, the markets don't do well with uncertainty and this is a cloud of uncertainty. So, yeah, the economy is resilient for a good reason. The U.S. economy – and maybe I am an outlier on this, but the U.S. economy is actually in pretty good shape. You have unemployment under 3% -- under 4%. You have had increasing worker participation in the workforce. There is very modest inflation. All of the states and municipalities that were supposed to be in financial trouble a decade ago, it didn't turn out that way. The U.S. economy is doing fine. This could derail it, but it hasn't yet.
WILFRED FROST: So, given the strength or relative strength of the U.S. economy, are you surprised at the level of the pivot that we have seen from the Federal Reserve in its rhetoric over the last six months? Hikes in December and the rhetoric we have had since then?
JAMES GORMAN: The Fed is in a tough place. Because the Fed's job, obviously, is safety and soundness and overall monetary stability. You know, when uncertainties rise to a big enough level, it does affect how consumers behave, it does affect how corporate CEOs invest behind their companies. And that is going on with this level uncertainty. If you seeing it slowing, the question for the Fed is when do you preempt? Now, my personal view is you be very aggressive on the way up in raising rates so that, you know, you are stopping what could be an asset bubble at some point. I personally would be more conservative in cutting rates because I don't think you want to use your firepower too early. So, the Fed is in a difficult position. They've got a bit of firepower – not much. They know they are going to have to use some. My guess is it looks like the market is pricing a rate cut next month. But they have got to be careful here. The economy is not weak yet. The uncertainties covering hoovering over the economy are profound, and that's the tension.
WILFRED FROST: So, the President is wrong to be calling for 50 basis points cuts right away?
JAMES GORMAN: Well, I would never call the President wrong. What I would say is everybody has got an opinion as to when you intervene. Right now, if you read the Fed language from the last FOMC meeting, it is suggestive that they are prepared to move to a cut. Whether it's 25 or 50, you know, I'm not smart enough to know what the right answer is.
WILFRED FROST: I want to move on to talk a little bit about some Morgan Stanley specific stuff. And there have a slew of IPOs over the course of the last quarter. Can that continue for the rest of this year, at the pace we have seen in Q2?
JAMES GORMAN: There are a lot of great companies out there lined up. And as we have seen, a lot of them are late cycle. They have had multi-fundraisings. So, that's more challenging because investors are getting their current round and getting in relatively late. But, yeah, there are a lot of tech deals still in the cycle, a lot of biotech deals.
WILFRED FROST: You guys led the Uber IPO.
JAMES GORMAN: Yep.
WILFRED FROST: Did your bankers get the pricing wrong on that?
JAMES GORMAN: You know, what's wrong? Day one. The first five minutes. A month. We had the same issue with Facebook. And I went, I think on your show, and I said: give it time. This is a great company. We are focused on how we trade in the market on that given day versus what the actual company is. And it was a tough week. I mean, the China trade stuff was going on. No, Uber's, I think Uber was priced fine and Uber is going to be fine. It's a great company.
WILFRED FROST: On the Lyft IPO, CNBC's Leslie Picker reported that you created some kind of synthetic short to help certain shareholders get around the lock-up period that they were in. Has that reporting made it harder for your ECM business to win further business?
JAMES GORMAN: Well firstly, there's a difference between reporting and facts. So—
WILFRED FROST: So, you deny it.
JAMES GORMAN: We didn't have any problem with -- and the allegations around that were ridiculous, frankly. So--
WILFRED FROST: So, there were no synthetic shorts created, whatsoever.
JAMES GORMAN: No. We weren't creating shorts. We weren't trying to help people who shouldn't have been in a position where they could sell the stock. That's not what we do.
WILFRED FROST: And so just to round off on the markets for the first portion of the interview, you mentioned that they had been quite scared by the trade talk. When you look at all of the challenges out there at the moment, are you surprised to see markets at or near all-time highs?
JAMES GORMAN: You know, I have said this before, Wilfred. That if you think about a growing economy, increasing demographic population growth, by definition the market should finish at a high every single day. Right? It should be a surprise when they don't, logically. Now, of course, they don't because there are always these externalities which we saw at back– you stand far enough back from an S&P chart and look over time, it's a straight line. Bottom left corner, top right. You get very, very close and it's doing this. So, am I surprised? No. The U.S. economy has been in phenomenal shape. Let's just say it. It's been in phenomenal shape. Am I surprised there is now a lot of uncertainty about the future of that? No, I'm not surprised either.
WILFRED FROST: James, always a pleasure talking with you. We are going to hit the pause button now on the live part of the interview and head it back to Sara. And, Sara, we'll have more to come on "Closing Bell," of course later in the show.
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