WHEN: Today, Thursday, October 26, 2023
WHERE: CNBC’s “Squawk on the Street”
Following is the unofficial transcript of a CNBC interview with outgoing Morgan Stanley CEO James Gorman and incoming Morgan Stanley CEO Ted Pick on CNBC’s “Squawk on the Street” (M-F, 9AM-12PM ET) today, Thursday, October 26. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2023/10/26/morgan-stanleys-incoming-ceo-ted-pick-our-business-strategy-is-sound-there-will-be-no-change.html.
All references must be sourced to CNBC.
LESLIE PICKER: Hi Carl. Yes, I am here with Ted Pick, the newly named CEO effective January 1st, as well as James Gorman, current CEO, soon to be executive chairman also effective January 1st. Thank you both so much for being here. First on CNBC interview since this news was announced. James, let’s start with you. Why, ultimately, was Ted selected for the role?
JAMES GORMAN: Beats me.
PICKER: Was it his —
GORMAN: I told you I’d get you to laugh.
PICKER: There was a five-month process.
GORMAN: It was – we had an unbelievable process.
PICKER: Two other candidates.
GORMAN: Dennis Nally, who ran the comp development management succession committee led the process. Tom Glocer, who led the board, they’re involved. Honestly, we were doing this from three years ago. And, you know, we had three phenomenal candidates. Ted, you know, on the business side, he’d grown up in capital markets. He then ran equities and brought that to be the number one or two depending on the quarter. And then he went into fixed income and turned that around in 2015-2016. So, he’d taken a great business and made it better, taken a business that was broken at the time and fixed it. Then we gave him banking, made him co-president and gave him IT. So, had all the business skills, but he also had the strategic skills, the ability to knock through some very complex problems that we’ve faced over the last decade. He’s been working side by side with me for a decade. So, he’s a great leader, has tremendous fellowship here, tremendous passion, outstanding choice.
PICKER: Ted, I know you’ve said that you don’t expect any major strategy shift while you’re in the role, but is there anything you want to put your stamp on? Any vision you have that’s different than what we’ve seen in the last 14 years with James at the helm?
TED PICK: Well, first of all, thanks for having us. And this is a special day for me and for the firm. And I’m so thankful to James for getting the CEO nod. It’s the privilege of a lifetime. The business strategy is sound. There will be no change in strategy. We know who we are after 15 years of transformation under James’ extraordinary guidance. We’ve got a strategy where we have a world-class wealth and asset management business. We’ve got a world-class integrated investment bank. And there are so many opportunities to grow both of them globally. It’s a strategy that’s in place and we’re going to keep with it.
PICKER: And we’re going to get into those individual businesses in just a moment. But kind of sticking with the succession theme here, James, this is a firm that’s had some history in terms of succession battles. And my reporting and others reporting has indicated that that’s not really been the case this time around. But there is this concern that the two people who were also contenders, Dan Simkovitz and Andy Saperstein, who didn’t get the job of CEO, there’s some concern that they might leave. Do you have any commitment from them?
GORMAN: Totally. Yes.
PICKER: You know, they have an expanded role, but do you have a commitment from them that they do plan to stay and —
GORMAN: Firstly, they’re phenomenal executives. They’re actually friends of both of us. So, I’ve known Andy for 30 years. We worked together at three different companies. Dan’s been on my operating committee, I think, for eight or ten years. He runs asset management. They’ve both done incredible jobs, Andy integrating E*Trade, Dan integrating Eaton Vance. Unfortunately, we can only have one CEO. But they’re both going to be co-presidents. They’re going to work with Ted running the firm. And, yes, they’re going to stay. They’re committed to Morgan Stanley. And I know people doubt that and I actually saw an analyst report the other day downgrading us because they thought, you know, we’d have a whole mess here and turned out we didn’t. You know, we’ve really worked hard on our culture, our values and on the team at the top to make sure this worked. And I couldn’t be more proud of all three of them.
PICKER: Ted, James’ legacy, in part as you know, all the articles that are being written today and when you first announced the succession plan back in May, a lot of it was shaped by the wealth management side of the business, buying, building, wealth investment management, buying out the rest of Smith Barney, E*Trade, Eaton Vance. And the growth of this more durable business has led to a multiple that’s higher than a lot of peers. The street seems to like it. But your experience is in investment banking and trading. And so how do you plan to tackle, you know, this curve here and continue the momentum, especially after Q3 saw a bit of a, you know, retrenchment in terms of momentum in this business.
PICK: Sure. Well, the first piece of it is Andy and Dan. Two exceptional partners, terrific friends. We’ve known each other forever. We work with clients together. We do town halls together. So, having those two exceptional leaders in their jobs getting expanded roles is a key part of why this is going to work. And the reality is, you’re right, we got to where we are largely because we transformed the firm and we sought out those durable revenues. James had bravery, he had vision, and we grew the business. We grew the business organically and then we made these two gigantic acquisitions after we had integrated Smith Barney right after the financial crisis. And the E*Trade and Eaton Vance, that’s three acquisitions, the firms integrated, and there is much more to do. The reality is that the firm, having both a winning wealth and asset management business, alongside an integrated investment bank, is a special combination. And having those two work even more closely together is something that Andy, Dan and I are going to be working closely with James on.
PICKER: And, James, in terms of investment banking, you said on the call last week that when the Fed indicates it will stop raising rates, the M&A calendar will essentially explode because there’s a lot of pent up demand.
GORMAN: Sure.
PICKER: And when we spoke in July you said that that business had basically bottomed out.
GORMAN: Yes.
PICKER: And, you know, indicated that a turnaround was pretty imminent there. Do you still believe that’s the case and how confident are you in the I-banking tailwind, especially if do see some sort of recession next year?
GORMAN: You know, I was early. I said we were seeing green chutes and somebody said, which I thought was pretty funny, you forget to water them. You know, I mean, listen, we’re not – we’re not that good that we know in any 13-week period when it’s happening. Inflation was sticking coming down. The Fed had to move aggressively. They did. I think they’re likely within a quarter basis point – a quarter interest rate of 1 percent getting – getting to where we need to go. And at that point, yes, you’ll see – I mean you just saw the Chevron deal, which we’re in. That’s a huge deal. And that’s, you know, the whole energy sector is transforming right now. You’ve seen it in the banking sector. You’ve seen a number of transactions over the last couple of years as there’s more consolidation. So, it’s coming. Whether I happen to think, you know, I thought it would be more in the fourth quarter, sort of sprinklings third quarter, more fourth quarter. That’s more like I think now first quarter because the announcements have picked up but it takes, I don’t know, six months, right, for the revenues to hit. So there’s a little bit of a lag.
PICKER: Yes.
GORMAN: But it’s coming. I’m, that’s the least of my stresses in life.
PICK: There’s no, there’s no doubt strategic M&A is coming.
GORMAN: Yes.
PICK: Three years of the pandemic. The war, a second war. Boardrooms can wait just so long. Now the large cap M&A cycle is going to begin.
PICKER: What about strategically for Morgan Stanley because investment banking revenue at this firm was down 27 percent in the third quarter. And I know when there’s muted activity, things can get lumpy quarter to quarter. But a lot of your peers saw more stabilization in investment banking in the third quarter. Is there anything you’re doing, whether it comes, you know, in terms of talent or strategic shift, to kind of build that back up so that when those green chutes are watered and do start to actually blossom that you’re well positioned?
PICK: It’s the right question. We’re working it hard. Bankers are out there working it hard and working closely with folks in fixed income and equities to bring the integrated investment bank. And investment banking, given there’s the three-to-six-month lag before deals close, you really want to look at the forward pipeline. And the forward pipeline has gotten sequentially bigger with each passing month, mid cap offerings, large-scale large-cap M&A across industry groups, that’s going to be the most interesting part of the next cycle given that we have higher interest rates and the world’s gotten smaller is that we’re going to see M&A across the entire industry – entire industry arena. And for Morgan Stanley that’s a strength because we have industry strength all over – all over the world.
PICKER: Well, I’m curious, it’s interesting because I was looking back to actually James’ first interview he did for CNBC in 2010, which was talking all about Dodd/Frank.
GORMAN: Wow.
PICKER: And now we’re also look at some significant regulation with the Basel III Endgame and those higher capital requirements that will soon be, you know, falling under your purview, Ted. So, I’m curious, how do you plan to prepare for that new regime? Is it a matter of shifting around capital allocation plans or are you looking at potentially buying any businesses that are well capitalized to help, you know, prepare for that eventuality?
GORMAN: I mean I’ll – I’ll just kick in here because I’ve been —
PICKER: You’re at the forefront, yes.
GORMAN: I’ve been living it for a long, long time. The Fed has asked for proposals of all kinds to comment on what, you know, comments of all kinds, to comment on this proposal here. This is going to take a long time to get better. It’s not, you can’t change your business model anticipating something might happen. You need to know what will happen. We’ve carried excess capital for 10 years. We have the highest capital ratio of any of the larger banks, largest banks I think in the world right now. That’s for a reason. We’ve got massive buffers. So, it won’t change our strategy whatsoever. That’s different from, do the banks actually need more capital? I have a very strong view that they don’t. The large banks are well capitalized. CCAR actually has proven that year in year out. But if the rules actually come through in any form close to where they’re proposed, then banks have to enter their capital bets. We’ve already got it. So, no, it won’t change the strategy one bit.
PICKER: All right. Well–
PICK: And that, and that was a, that was a strategic decision. For the last ten years, James focused us on having many firms have 50, 100 basis point buffers, to have as large a buffer as practicable. And now that gives us options.
PICKER: Great. Well, James Gorman, current CEO, soon to be executive chairman, Ted Pick, incoming CEO, really appreciate you both sitting down with us for your first broadcast interview since the news was announced.
GORMAN: Thanks, Leslie. Great to be with you.
PICK: Thanks, Leslie, very much.
PICKER: Thank you.
GORMAN: Thank you.
