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Morgan Stanley ‘s (MS) multiyear transformation plan has been a success, CEO James Gorman said with pride Thursday — and, as shareholders, we see no reason to disagree. “We’ve steadily de-risked parts of the business that got us in trouble during the [Great Financial Crisis], and we obviously made a major push in building up wealth and asset management, and it worked,” Gorman said in a CNBC interview from the World Economic Forum in Davos, Switzerland. “We’re delighted with where we got to.” The Club is delighted, too, even if the market hasn’t always shared our conviction in the shift Gorman has engineered since taking over the Wall Street bank in 2010. Under Gorman’s leadership, Morgan Stanley has pivoted toward the more stable revenues associated with wealth and asset management, which decreases its reliance on the often volatile investment banking and trading businesses. This strategy attracted us to the stock nearly two years ago, believing that it would boost Morgan Stanley’s valuation over time — because, in general, investors put a premium on steady sales streams. MS 6M mountain Morgan Stanley’s stock performance over the past six months. Morgan Stanley’s strong quarterly results earlier this week validated our ownership yet again. Those fourth-quarter numbers also came on the same morning its longtime Wall Street rival, Goldman Sachs (GS), reported a sizable earnings miss due, in part, to its expansion into consumer banking . While declining to comment Thursday on his competitor, Gorman happily outlined what he views as the benefits of Morgan Stanley’s transformation. “We needed to build a business where, if the world got tough again — which we just saw last year an example of it — we would be just fine. And the way to do that is to build businesses that are stable; it doesn’t matter what the market conditions are,” Gorman said. “Listen, every person who is buying a stock, there’s somebody else selling it. Everybody who is buying a bond is taking money out of cash. … There’s constant movement of money. Our job is to be in the middle.” Acquisitions were a big part of how Morgan Stanley maneuvered its way into the middle of that money flow. The bank took full control of wealth manager Smith Barney a decade ago. More recently, it purchased brokerage E-Trade and investment management firm Eaton Vance . Valued at roughly $20 billion in total, those acquisitions closed in October 2020 and March 2021, respectively. The deals were “aggressive,” Gorman acknowledged. “We were told consistently when we bought Smith Barney then E-Trade, then Eaton Vance, we overpaid on all of them. My response was, ‘You’re right.’ But it doesn’t matter,” Gorman told CNBC. “We now own the business. It doesn’t matter plus or minus a billion dollars. What matters is over a 10-year period what you can do with that business.” We now own the business. It doesn’t matter plus or minus a billion dollars. What matters is over a 10-year period what you can do with that business. Morgan Stanley CEO James Gorman Economic outlook Gorman was also asked about his thoughts on the global economy, inflation and the Federal Reserve. His outlook was relatively optimistic at a time when consensus expectations are for a U.S. recession, albeit a mild one. Gorman said he thinks 2023 will be an improvement compared with 2022, which was filled with slumping stock markets and elevated price pressures that prompted a very aggressive interest rate-hiking campaign from the Federal Reserve. “I think it’ll be better. I really do,” Gorman said. While it’s unclear what the Fed will do with rates in the coming months, Gorman said that one favorable development, at least, is that U.S. inflation has already peaked. Recent government data has supported Gorman’s contention, with price pressures cooling for both consumers and wholesale producers . Another positive is what’s happening economically in China, Gorman said. While the CEO said Beijing’s decision to relax strict Covid controls is important, he put more emphasis on an adoption of growth-oriented economic policies and a thawing of U.S.-China tensions. He pointed to the meeting this week between U.S. Treasury Secretary Janet Yellen and Chinese Vice Premier Liu He as evidence. Elsewhere across banking, JPMorgan (JPM) CEO Jamie Dimon told CNBC earlier Thursday he believes the Fed may need to rise interest rates above its current projections because, he thinks, “there’s a lot of underlying inflation, which won’t go away so quick.” The Club’s take Despite widespread recession fears since last year, the Club has maintained its belief in Morgan Stanley. The transformation plan that Gorman touted throughout Thursday’s interview showed why we not only stayed invested but bulked up our position at lower levels as the stock sold off early last year. As of right now, we’ve got a 2 rating on Morgan Stanley, meaning we’d wait for a pullback before buying more shares. The stock has gained more than 10% already in 2023 — helped in large part by a nearly 6% advance Tuesday as investors cheered the bank’s earnings report. We can certainly afford to be patient while we wait for investment banking revenues to bounce back from a multi-quarter slump. Morgan Stanley shares carry a roughly 3.3% dividend yield, and it bought back $1.7 billion worth of stock in the fourth quarter. The firm appears to be positioned to continue repurchasing stock because in June its board authorized a multiyear, $20 billion buyback program . (Jim Cramer’s Charitable Trust is long MS . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
James Gorman, Chairman & CEO of Morgan Stanley, speaking on Squawk Box at the WEF in Davos, Switzerland on Jan. 19th, 2023..
Adam Galica | CNBC
Morgan Stanley‘s (MS) multiyear transformation plan has been a success, CEO James Gorman said with pride Thursday — and, as shareholders, we see no reason to disagree.
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