Even though Morgan Stanley's shareholders have been critical of the company's performance under CEO James Gorman, as well as of his pay package, they gave him a pass on Tuesday during the firm's annual meeting. They re-elected all directors and approved the compensation plan.
Morgan Stanley shares are down more than 19 percent since Gorman took the helm in January, 2010. The compensation plan received 86 percent approval from shareholders. Morgan Stanley shares rose nearly 3 percent in trading on Tuesday, to $24.34.
Hedge fund exec Dan Loeb took a stake in the company at the beginning of this year on the assumption that the CEO could pull off a turnaround, particularly in the firm's fixed income performance. During Tuesday's meeting in Purchase, N.Y., he vowed Morgan Stanley would hit a 10 percent return on equity by 2014, subject to certain capital returns.
CLSA analyst and Gorman critic Mike Mayo asked directors what they planned to do keep Gorman's feet to the fire. "Reaching return on equity and cost of capital goals are key," said lead director Bob Kidder.
But the company's first quarter performance was a letdown. Morgan Stanley's fixed income trading revenue fell 42 percent from the previous year. That compares to much smaller declines at competitors. Gorman called the firm's fixed income and currencies business " a work in progress," and "that it is in the midst of a multi-year turnaround." Still, he said it will be a long process.
Morgan Stanley also had the biggest drop in equity revenue of the top five capital markets firms in the U.S. During the meeting Tuesday, Gorman described 2012 as "an inflection point" for Morgan Stanley.
In March, the Federal Reserve approved Morgan Stanley's capital plan, which was centered around buying the 35 percent of the Smith Barney brokerage joint venture that Morgan Stanley doesn't already own. For that reason, Gorman did not request share buybacks or dividend increases.
Unlike at JPMorgan Chase, there is no shareholder proposal to split the chairman and CEO role on the proxy, so the showdown with Gorman may come over pay. Proxy advisor Glass Lewis is urging shareholders to vote against Gorman's compensation package. The last big bank CEO to get a negative vote on his pay was Vikram Pandit at Citigroup. He didn't keep the job for long after that.
Mitsubishi owns more than 22 percent of Morgan Stanley and has two directors on the board. That certainly helped sway the voting in Gorman's favor, and gives him better support from his board than Pandit had.