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Speaker 1: Good morning.

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Speaker 2: I'm Nathan Hager and I'm Karen Moscow. Here are the

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Speaker 2: stories we're following today.

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Speaker 1: We wrap up a very busy few days for big

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Speaker 1: bank earnings with Goldman Sachs reporting this morning. Bloomberg Intelligence

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Speaker 1: senior analyst Dallison Williams tells us what investors will be

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Speaker 1: looking for.

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Speaker 3: The important thing we'll be looking at is trading. How

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Speaker 3: is that holding up on a core basis, you know,

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Speaker 3: versus some of the competition. What are they doing in

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Speaker 3: terms of buybacks? And then aside from some of these

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Speaker 3: impairments and sevens costs, what's the core run rate for expenses?

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Speaker 3: They had set out sort of an ambitious target at

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Speaker 3: Investor Day, they reaffirmed that, but not going to do

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Speaker 3: that anytime soon. So I think that's the question, is

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Speaker 3: one can that get sort of closer to their target.

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Speaker 1: Bloomberg Intelligence senior analyst Allison Williams says revenue from advising

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Speaker 1: on M and Day transactions is poised to slump thirty

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Speaker 1: five percent.

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Speaker 2: Meanwhile, Nathan, it was quite a day on Wall Street

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Speaker 2: for Goldman rival Mark and stan Lee that bank stock

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Speaker 2: search more than six percent after CEO James Gorman said

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Speaker 2: the worst is over for the industry's downturn in trading

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Speaker 2: and investment banking.

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Speaker 4: I do believe it's bottomed.

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Speaker 5: Every ceo I'm talking to has tilted to a more

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Speaker 5: forward looking pasture. So I think deals will stock getting done.

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Speaker 5: Whether they happen in the back half of this year,

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Speaker 5: I'm not so sure. It might be, it might be

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Speaker 5: next year that it comes to It will definitely be.

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Speaker 5: It will be during next year when we see it,

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Speaker 5: if not this year.

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Speaker 2: And Morgan Stanley CEO James Gorman made the comments in

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Speaker 2: an interview with the Bloombergs and Ali Basik. Here more

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Speaker 2: of that conversation in just a few minutes.

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Speaker 6: Well, Kary.

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Speaker 1: The earnings continue to roll in, with twenty companies in

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Speaker 1: the S and P five hundred reporting today, and Bloomberg's

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Speaker 1: John Tucker joins us to look at two of the

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Speaker 1: big ones.

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Speaker 7: John and Nathan Tesla reports After the close, Investor is

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Speaker 7: going to be looking for more details on the much

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Speaker 7: delayed cyber truck. They also want to know about how

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Speaker 7: a series of price cuts cut into margins. They did

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Speaker 7: make dramatic cuts of as much as twenty nine percent

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Speaker 7: of their best selling model. Tesla's stock is up one

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Speaker 7: hundred and thirty eight percent since the start of the year.

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Speaker 7: The adjusted earnings per share estimate is eighty one cents.

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Speaker 7: Streaming giant Netflix also reports after the close. The expectations

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Speaker 7: there are high. A crackdown on passwords sharing manlet to

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Speaker 7: a jump in subscriptions. Companies add subscription tier may also

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Speaker 7: show some promise, and Netflix stock that's a sixty one

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Speaker 7: percent year to date. In New York, I'm John Tucker,

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Speaker 7: Bloomberg Day Break.

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Speaker 2: All right, John, Thanks well. Shares of Carvana are down

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Speaker 2: about eight percent in early trading. The used car retailer

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Speaker 2: surprised investors with a last minute change to its earnings plans.

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Speaker 2: The company now intends to release second quarter results before

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Speaker 2: the market opens this morning. Carvana did not say why

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Speaker 2: it moved up the release, which was previously set for

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Speaker 2: August third.

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Speaker 1: In the UK, Karen, we have an encouraging reading on

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Speaker 1: inflation this morning. Let's get that from Bloomberg's U and

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Speaker 1: Potts in London. Good morning, Ewan, Good morning, Nathan, and Karen.

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Speaker 8: Britain's inflation rate has finally dropped blow eight percent, the

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Speaker 8: pound falling this morning after CPI in the year to

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Speaker 8: June came in at seven point nine percent, better than

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Speaker 8: economists were expecting and a shop drop from the previous reading.

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Speaker 8: Core inflation also dropped, but is still at six point

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Speaker 8: nine percent, a level which the Bank of England and

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Speaker 8: UK consumers will find far from comfortable. But head of

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Speaker 8: the Bank's meeting early next month, investors are today pairing

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Speaker 8: back bets on a shop further shop fall, a further

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Speaker 8: shop rise in interstrates in London, Immune Pot's Pimberg day.

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Speaker 2: Break all right you in, thank you well. In political news,

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Speaker 2: legal pressure continues to mount on former President Donald Trump.

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Speaker 2: The first pre trial hearing has been held in the

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Speaker 2: classified documents case against him, but there's still no word

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Speaker 2: on a trial date, and Bloomberg's Ed Baxter has the latest.

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Speaker 9: Trump's attorneys do not want to date set now and

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Speaker 9: potentially to be held off until after the twenty twenty

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Speaker 9: four election. Judge Aleen Cannon did express some skepticism about that,

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Speaker 9: as well as the government's arguments now. Setting a schedule

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Speaker 9: for coming months is usually an uncontroversial step on a

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Speaker 9: typical trial, but this is not a typical or usual

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Speaker 9: proceeding scheduling Trump trials continues to get more and more

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Speaker 9: complicated as the cases against him mount. In San Francisco,

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Speaker 9: I'm at Baxter Bloomberg Daybreak.

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Speaker 1: And there's one more case aid. The State of Michigan's

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Speaker 1: filed charges against sixteen Republicans who put themselves forward as

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Speaker 1: alternative electors for then President Trump in twenty twenty. This

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Speaker 1: came on the same day the former president said he's

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Speaker 1: been told he's a target of the Justice Department investigation

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Speaker 1: into January sixth, all.

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Speaker 2: Turning to the White House, Nathan, there's been a major

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Speaker 2: development that could affect US China relations. The Biden administration

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Speaker 2: has officially cut funding for the Wuhan Institute of Virology.

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Speaker 2: Now it's a facility at the center of the COVID

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Speaker 2: nineteen lab leak theory, and Bloomberg's Amy Morris explains from

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Speaker 2: our ninety nine one newsroom in Washington.

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Speaker 10: Bloomberg News has obtained a memo in which the Department

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Speaker 10: of Health and Human Services formally notified the Wuhan laboratory

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Speaker 10: of the suspension and that it is seeking to cut

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Speaker 10: it off permanently. An AHHS review raised concerns that the facility,

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Speaker 10: based in Wuhan, China, where COVID first emerged, is violating

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Speaker 10: biosafety protocols and is not complying with US regulations. This

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Speaker 10: is so far the most drastic action taken by the

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Speaker 10: US over the lab's failure to share information into COVID's origins.

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Speaker 10: The Wuhan Lab can contest the suspension and proposed department

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Speaker 10: in Washington. I Mamy Morris, Bloomberg Daybreak.

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Speaker 1: Okay mee, thank you. Finally, there is no end in

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Speaker 1: sight for the heat dome that's been making the South

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Speaker 1: for weeks. Phoenix, Arizona, has had nineteen straight days above

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Speaker 1: one hundred and ten degrees. That's the longest streak since

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Speaker 1: nineteen seventy four. It could keep going the rest of

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Speaker 1: the week. It's supposed to hit one hundred and fifteen

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Speaker 1: in Phoenix today and one hundred and sixteen tomorrow into Friday.

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Speaker 1: Let's take a look now at some of the stories

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Speaker 1: making news in New York and around the world with

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Speaker 1: Bloomberg's Michael Barr.

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Speaker 6: Good morning, Michael, Good morning, Nathan. More potential locations are

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Speaker 6: being investigated in the Gilgo Beach serial killings. Authorities in

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Speaker 6: South Carolina and Nevada are looking into property is owned

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Speaker 6: by the Long Island men accused of murdering three women

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Speaker 6: and dumping their bodies more than a decade ago. Rex

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Speaker 6: Hureman is being held without bail on suicide Watch. New

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Speaker 6: York investigators scoured his home, where they've already retrieved more

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Speaker 6: than two hundred guns. The Texas Department of Public Safety

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Speaker 6: is investigating allegations that state troopers were ordered to push

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Speaker 6: back those attempting to cross the border, including children, into

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Speaker 6: the Rio Grande and Eagle Pass, and deny people water

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Speaker 6: during extreme heat. US Congressman Greg Kassar and other lawmakers

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Speaker 6: are blaming Governor Abbots border security policies, pushing.

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Speaker 11: Kids back into the water, putting razor wire around buoys

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Speaker 11: to create drowning devices. This isn't just illegal, It is

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Speaker 11: not just wrong. It is something that the federal government

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Speaker 11: has the ability to stop.

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Speaker 6: Governor Rabbit's office defended the barbed wire and other safety measures,

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Speaker 6: stating in part, Texas is deploying every tool and strategy

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Speaker 6: to deter and repel illegal crossings. Defense Secretary Lloyd Austin

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Speaker 6: says an American soldier crossed the demilitarized Zone from South

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Speaker 6: Korea into North Korea.

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Speaker 4: One of our service members who was on.

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Speaker 6: A tour will pu Ley and without authorization, crossed the

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Speaker 6: military demarcation line.

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Speaker 4: We believe that he is INDPRK custody.

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Speaker 6: The soldier, twenty three year old Army Private Travis King,

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Speaker 6: was apparently expected to be sent home following two months

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Speaker 6: in a detention center when he fled a possible break

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Speaker 6: in the cold murder case of Tupatchakor. Police searched a

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Speaker 6: home in the Las Vegas area in connection with a

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Speaker 6: nineteen ninety six feetal drive by shooting of the rapper.

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Speaker 6: He was lost for months, adrift in the Pacific for

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Speaker 6: more than twelve hundred miles on a disabled catamaran with

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Speaker 6: no way to cook and no source of fresh water

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Speaker 6: but the rain. But Australian Timothy Shaddock with his dog

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Speaker 6: says he was rescued this week by a fishing crew.

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Speaker 12: Look, I'll always be in the water, you know, I

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Speaker 12: don't know how far out in the ocean, and again

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Speaker 12: I'll be you know, But I think I'm I just

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Speaker 12: love love.

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Speaker 6: Nightshet Shadick said at one point he expected to die.

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Speaker 6: Global News twenty four hours a day, powered by more

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Speaker 6: than twenty seven hundred journalist nanalysts over one hundred and

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Speaker 6: twenty countries. I'm Michael Barr, and this is Bloomberg Nathan.

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Speaker 13: Thanks Michael.

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Speaker 1: Time now for the Bloomberg Sports Update. Here's John Stasha.

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Speaker 4: Thanks Nathan. Wild Night.

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Speaker 13: In baseball, twelve teams scored ten or more runs, Corney

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Speaker 13: the Elias Sports Bureau. That has happened before, back in

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Speaker 13: ninety four eighteen ninety four Minnesota, Cleveland, the Dodgers all

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Speaker 13: scored ten times. The Cubs went for seventeen. Arizona won

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Speaker 13: in Atlanta sixteen to thirteen, and three games finished eleven

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Speaker 13: to ten, including the Mets in white Sox in City Field.

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Speaker 13: Didn't look like that would.

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Speaker 7: Happen two to one.

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Speaker 14: Swinging a fly ball Santie left center field.

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Speaker 13: He got another one who Ron Avarez.

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Speaker 14: Two run shot with a twenty one year older rounds

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Speaker 14: the basis for the second time tonight. The Met's taking

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Speaker 14: eleven four lead on Alvarez his nineteenth hall run of the.

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Speaker 13: Year, WCBS so eleven to four, seventh in in Chicago,

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Speaker 13: then closed within one twice had the time run on.

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Speaker 4: The Mets held on to win.

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Speaker 13: So all this scoring, and then there are the Yankees,

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Speaker 13: who had two hits on a five to one loss

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Speaker 13: of the Angels, the Yanks eighth loss the last ten games.

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Speaker 13: They are fifteen and twenty one since the Aaron Judge

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Speaker 13: toe injury. They played this afternoon, having already lost this series.

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Speaker 13: It's the fourth series they've lost in July, all four

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Speaker 13: against teams with sub five hundred records. Golfin England Open

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Speaker 13: Championship one hundred and fifty first edition teen off early

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Speaker 13: tomorrow morning at Royal Liverpool. Last time he was held

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Speaker 13: there in twenty fourteen, Rory McElroy won that, and though

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Speaker 13: he hasn't won a major since twenty fourteen, he's the

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Speaker 13: betting favorite this week. The United States, not surprisingly the

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Speaker 13: betting favorite to win the Women's World Cup soccer for

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Speaker 13: the third time in a row. Begins tomorrow. The US

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Speaker 13: takes on Vietnam Friday in New Zealand. John dash Hour

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Speaker 13: Bloomberg Sports.

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Speaker 7: From coast to coast, from New York to San Francisco.

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Speaker 6: Boston to Washington, DC, nationwide on Syrias Exam, the Bloomberg

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Speaker 6: Business Appen Bloomberg dot Com.

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Speaker 1: This is Bloomberg Daybreak. Good morning, I'm Nathan Hager. Have

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Speaker 1: we reached bottom? In trading and investment banking. The CEO

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Speaker 1: of Morgan Stanley, James Gorman, thinks so. In a conversation

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Speaker 1: with Bloomberg Shanale basse At, Gorman discussed investment bank activity

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Speaker 1: and finding his successor after he recently announced he does

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Speaker 1: plan to leave his position. They also dug into new

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Speaker 1: capital proposals and how those could affect the US banking system.

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Speaker 1: So let's listen.

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Speaker 5: In fourteen years, is it's a long time to do

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Speaker 5: anything and to run a global bank and deal with

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Speaker 5: all the changes that are going on in the world.

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Speaker 5: You know, it's important for organizations to refresh. So I

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Speaker 5: think it's certainly a very long time to be a

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Speaker 5: bank CEO, and everybody's going to find their own agenda.

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Speaker 5: My focus is on ensuring that this place does well

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Speaker 5: over the next ten and twenty years. To do that,

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Speaker 5: you need to give the next generation a chance, and

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Speaker 5: they will do things differently and they will grow the

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Speaker 5: place in a way that I might might not have imagined.

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Speaker 4: So it's exciting, it feels right.

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Speaker 15: What criteria is the board using to choose a new CEO?

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Speaker 15: I mean, it's a big open question on whom I

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Speaker 15: take over next you've said there are three candidates, how

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Speaker 15: do we think about who the next person is?

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Speaker 5: Well, I think you've got you look at a whole

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Speaker 5: range of criteria. The first and obvious one is that

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Speaker 5: they're good at running businesses. And you know, when I

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Speaker 5: took over the job, I was actually running the smallest

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Speaker 5: and worst performing part of the company, but we were

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Speaker 5: turning it around. So the board wants to know they're

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Speaker 5: good business leaders. But the other qualities which every institution,

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Speaker 5: be it educational, government or not for profit or public

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Speaker 5: companies look for in leaders its endurance, resilience, strategic sense,

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Speaker 5: communication skills, all the obvious stuff that you'd expect. And

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Speaker 5: fortunately we've got three fabulous candidates. They're all internal and

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Speaker 5: they all have great business skills. And now the board has,

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Speaker 5: you know, the opportunity to figure out who's the best

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Speaker 5: to lead Morgan Stanley for the years ahead the Morgan

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Speaker 5: sane that we're going to become.

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Speaker 4: So I think they can all do it.

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Speaker 15: If you think about just how much Morgan Stanley has

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Speaker 15: changed and the investments you've made in wealth management, investment management,

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Speaker 15: and frankly, the idea here that the profitability of the

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Speaker 15: wealth manager is just through the roof and frankly a

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Speaker 15: lot more than you're seeing even in institutional securities.

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Speaker 4: Does it make more.

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Speaker 15: Sense for the future leader to come from some of

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Speaker 15: those growth areas well.

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Speaker 5: I'm not going to get into speculating, which is, you

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Speaker 5: know what I'm sure you'd like me to do. But

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Speaker 5: the board doesn't look so much at how a specific

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Speaker 5: business is performing. They look at again the enduring qualities

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Speaker 5: of the leader and whether they have the kinds of

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Speaker 5: skills you need to lead a complex global institution. And

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Speaker 5: as I said, all three of the people we have

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Speaker 5: internally are terrifically well equipped. They're great people, they have

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Speaker 5: great respect for each other, they have terrific values. So

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Speaker 5: you know we've got an embarrassment of riches as well.

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Speaker 15: I'll say, how do you focus on culture during this transition?

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Speaker 15: How do you ensure that whoever doesn't get the job

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Speaker 15: stays on board? Is that something you worry about?

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Speaker 11: No?

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Speaker 5: Really, no, I think you know we've worked together for

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Speaker 5: I think with this team plus the other senior leadership

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Speaker 5: people like Sharona Shire, our CFO is on the call,

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Speaker 5: Eric Grossman, our chief legal officer, Carol vincent Green, who

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Speaker 5: runs internal audit We've had a very significant leadership team

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Speaker 5: working closer together for a long period of time. What

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Speaker 5: matters about cultures. You share the same values and we

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Speaker 5: share the same value. There's no there won't be the

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Speaker 5: drama that people perhaps look for in succession around this

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Speaker 5: particular one.

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Speaker 4: I'm convinced.

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Speaker 5: I think it will be relatively seamless, and I think

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Speaker 5: it will lead to a great outcome.

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Speaker 15: Now we have to about the numbers here, because Wealth

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Speaker 15: Management two hundred billion dollars in net new money for

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Speaker 15: the first half of the year, and it's quite breathtaking.

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Speaker 15: It's certainly nothing to cry about here. How much of

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Speaker 15: this is a function of the dislocations in the market

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Speaker 15: the business that you've taken on from First Republic or

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Speaker 15: Silicon Valley Bank, I.

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Speaker 5: Would think I don't know exactly, but my guess is

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Speaker 5: less than ten percent related to that. So ninety percent

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Speaker 5: related to just the change in the business model that

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Speaker 5: we've put in place over the last you know, fifteen years,

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Speaker 5: and that business now led by Andy Sepstein, have figured

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Speaker 5: out a variety of ways to grow client activity, whether

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Speaker 5: it's through direct through the e trade platform and the

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Speaker 5: digital bank, whether it's through the workplace, which we did

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Speaker 5: first with Solium the acquisition, then the e trade workplace,

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Speaker 5: the advisor lay channel. We've had very low turnover advisors,

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Speaker 5: and we still seem to be the place of choice

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Speaker 5: for many of our competitors financial by So it's the

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Speaker 5: beauty of it is it's no one single thing. This

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Speaker 5: quarter it was a bit more advisor driven than it

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Speaker 5: was last quarter, but all of them are contributing.

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Speaker 4: That's why I think it's going to endure.

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Speaker 15: When you look at the stock price on my way

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Speaker 15: over here, it was up more than seven percent. You're

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Speaker 15: on track to have the best performance in trading right

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Speaker 15: after and early's released in your tenures certainly of not

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Speaker 15: history here. So what do you think investors are latching

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Speaker 15: onto when they look at today's numbers?

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Speaker 4: I think I should retire right today.

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Speaker 5: Isn't this the moment where you drop the mica or something?

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Speaker 4: Then who's in the c Yeah, I know that's not

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Speaker 4: going to happen. Nice try Oh listen.

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Speaker 5: We had some big movements in the stock when it

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Speaker 5: was very low back in twelve and fourteen and sixteen,

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Speaker 5: twenty twelve, fourteen, sixteen, No, but today's big. But it's

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Speaker 5: just reflective of the fundamentals are really strong. Our capital ratios.

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Speaker 5: I mean, we'll see when all the banks reported were

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Speaker 5: close to the end of the major banks, but I'm

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Speaker 5: pretty sure we've got the highest capital levels of any bank,

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Speaker 5: any major bank in the US.

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Speaker 4: The net new money.

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Speaker 5: Numbers your reference are obviously evidence of growth, and now

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Speaker 5: dividend is four percent or close to it. So combination

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Speaker 5: of really high conservative capital levels, obvious organic growth within

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Speaker 5: a couple of core businesses, and very high dividend yield

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Speaker 5: for what we do. I think the investors sensibly look

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Speaker 5: past what's been going on in the market recently. You know,

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Speaker 5: IPO activities obviously down, m and A activities down, Some

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Speaker 5: of the fixed income trading was a little more muted.

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Speaker 5: None of that matters, right, strategically, that doesn't matter. That's

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Speaker 5: a point in time. Market sentiment that will change. Deals

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Speaker 5: will get done, companies will go public, people will trade.

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Speaker 5: So I think the market sensibly looked at the big

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Speaker 5: picture items and said, yeah, the rest of the stuff

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Speaker 5: will just come, and that's why we're trading the way

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Speaker 5: we're trading.

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Speaker 4: It was a great clean quarter when you look.

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Speaker 15: At investment banking trading advice when do they come back

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Speaker 15: and how robust will that activity be?

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Speaker 5: Well, I think I don't know when exactly. I do

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Speaker 5: believe it's bottomed. And we were just talking before we

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Speaker 5: got on air. You know, I've been to in the

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Speaker 5: last couple of months Australia, Japan, Saudi, France, England, Ampstin,

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Speaker 5: I mean, and all over the US, and every CEO

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Speaker 5: I'm talking to has tilted to a more forward looking pasture.

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Speaker 5: So I think deals will start getting done. Whether they

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Speaker 5: happen in the back half of this year, I'm not

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Speaker 5: so sure. It might be, it might be next year

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Speaker 5: that it comes to It will definitely be. It will

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Speaker 5: be during next year when we see it, if not

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Speaker 5: this year.

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Speaker 15: James, what does all of this mean for headcount? You've

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Speaker 15: booked more than three hundred million dollar cost tied to

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Speaker 15: severance packages, but it seems like headcount is starting to stabilize.

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Speaker 15: Do you think that a rebound in some of this

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Speaker 15: activity means that you could bring more people on or

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Speaker 15: do you still see more cuts in some areas?

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Speaker 5: Not really, I mean, we we laid off about eighteen

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Speaker 5: one hundred people last December, and we knew that was

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Speaker 5: an optimistic view and I said to the team, if

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Speaker 5: by April things haven't turned, we'll have to, unfortunately do

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Speaker 5: it again, and we ended up laying off another three

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Speaker 5: and a half thousand people. Now, against that backtrop we've

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Speaker 5: had attrition I think is running almost fifty percent what

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Speaker 5: historical rates are.

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Speaker 4: We've got eighty three thousand employees.

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Speaker 5: We bought two huge companies each Trade and Eat Advance,

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Speaker 5: and we guaranteed everybody their job during COVID, So headcount was,

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Speaker 5: if you will, artificially high. I regarded this as bringing

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Speaker 5: us back to what the normal run rate should be.

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Speaker 5: I don't think we're going to add to that. I mean,

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Speaker 5: one of the beauties of this business it's very scale driven.

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Speaker 5: If you do a few more trades, you don't need

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Speaker 5: more people to do it for the same client. So no,

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Speaker 5: I think we're about right with headcount right now. But

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Speaker 5: obviously you know we're we're we've got fiducial responsibility shareholders

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Speaker 5: deliver returns, and we watched that carefully.

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Speaker 15: You know, your views sound fairly rosy. I mean it

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Speaker 15: sounds like you are pretty sanguine about the direction of

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Speaker 15: travel here across different business lines. Earlier, this week's Secretary Treasury.

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Speaker 15: Yellen had told us that she believes that there might

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Speaker 15: not be a recession.

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Speaker 4: Do you agree with that view?

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Speaker 5: Well, I've said publicly for over a year I thought

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Speaker 5: the probability of recession was low, and if we have one,

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Speaker 5: the magnitude is likely to be relatively modest. So I've

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Speaker 5: been sort of between probability low, so likely we don't

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Speaker 5: have a recession, and if we do, it's not going

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Speaker 5: to matter that much. And I think things are playing

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Speaker 5: out that way. I mean, Chairman Powell said it. You know,

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Speaker 5: it is possible to have self landing, right, It's been done.

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Speaker 5: I think six of the last eleven rate increased periods.

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Speaker 5: I believe I'm right in saying that there've been self landing.

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Speaker 5: So it's not a given to have a recession. With

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Speaker 5: unemployment where it is, inflation now coming down under four percent,

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Speaker 5: unemployment still under four percent, decent economic growth, stable markets,

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Speaker 5: the banking system balance sheets are strong, and consumer balance

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Speaker 5: sheets are okay.

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Speaker 4: That's a pretty good backdrop.

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Speaker 5: Now, some industry sectors obviously hurting more than others, but

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Speaker 5: you're seeing it in the earnings this quarter. The earnings

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Speaker 5: are not really bad, they're not great, but they're not disappointing.

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Speaker 15: So then what keeps you up at night to the

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Speaker 15: extent that anyone thing can derail kind of this progress

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Speaker 15: in the economy, What would it be?

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Speaker 5: I mean, the real macro hashue, if you step back

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Speaker 5: from it, is the China US relationship. The GDP of

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Speaker 5: those two countries I think is forty percent of the

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Speaker 5: global GDP. They're very dependent. We're very dependent on China.

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Speaker 5: China is more dependent on the rest of the world,

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Speaker 5: frankly for trade.

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Speaker 4: So that's sort of the tipping point.

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Speaker 5: I mean, there's an existential one, which is the US

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Speaker 5: to faulding on its debt. That didn't happen. It's insane

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Speaker 5: that we should even be having these discussions. But thankfully

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Speaker 5: they got through the charade again. But what really matters

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Speaker 5: is US China geopolitical relationships for global trade and economic expansion,

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Speaker 5: and within that. You know, you've seen Secretary Blincoln and

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Speaker 5: now Secretary Yellen in the last month, both going there.

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Speaker 5: We're getting to a more constructive tone. So you know,

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Speaker 5: but Chanelli, honestly, after all the years of doing this,

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Speaker 5: I don't worry a lot at night.

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Speaker 4: I mean, stuff happens, and you deal with it.

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Speaker 5: You have a strategy which is designed to carry the

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Speaker 5: company forward for a decade or more, and you accept

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Speaker 5: the inevitable disappointment sloan the way or the things that

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Speaker 5: go wrong, and that's just part of being in leadership job.

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Speaker 15: Speaking of the next ten years, there is something around

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Speaker 15: the corner that has the potential to impact some of

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Speaker 15: the biggest businesses you have, and that is that Buzzle

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Speaker 15: three end game. Sure new regulations in the United States

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Speaker 15: and across the globe that are targeting now fee based businesses,

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Speaker 15: which has become a big part of your business, as

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Speaker 15: well as trading businesses. How do you expect those rules

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Speaker 15: to eventually impact the returns on those businesses?

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Speaker 4: Yeah?

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Speaker 5: Well, firstly, and I'll try not to get too weedy,

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Speaker 5: but the rule hasn't been proposed yet. We've had Buzzer one,

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Speaker 5: Buzzle two, Buzzle three, so I joke finally we're at

439
00:21:51,040 --> 00:21:53,160
Speaker 5: the end because they're now calling it buzzle three endgame,

440
00:21:54,000 --> 00:21:55,720
Speaker 5: so I guess we're not going to get four and five.

441
00:21:56,240 --> 00:21:59,200
Speaker 5: Europe has not even caught up and complied with its own.

442
00:21:59,119 --> 00:21:59,840
Speaker 4: Buzz or rules.

443
00:22:01,160 --> 00:22:04,560
Speaker 5: The US has had a system parallel to buzzle called

444
00:22:04,640 --> 00:22:07,520
Speaker 5: SECA and all of the banks have come through CCA

445
00:22:08,320 --> 00:22:13,639
Speaker 5: this cycle very well, so based upon Vice Chair bars speech,

446
00:22:13,800 --> 00:22:16,280
Speaker 5: clearly they're going ahead with a holistic so they look

447
00:22:16,320 --> 00:22:19,399
Speaker 5: at CCARM buzzle review that will be proposed in a

448
00:22:19,440 --> 00:22:22,680
Speaker 5: couple of weeks. I expect it to be pretty challenging

449
00:22:22,800 --> 00:22:26,159
Speaker 5: for the banking system at first blush. But if you

450
00:22:26,240 --> 00:22:29,520
Speaker 5: read the speech by the Vice Chair and various other commentary,

451
00:22:29,640 --> 00:22:31,760
Speaker 5: it is clear that they want input and they're going

452
00:22:31,840 --> 00:22:34,680
Speaker 5: to need input. There are things that were proposed under

453
00:22:34,680 --> 00:22:37,639
Speaker 5: the European system that I just don't think are appropriate

454
00:22:37,720 --> 00:22:40,680
Speaker 5: for the US system, like, as you said, changing the

455
00:22:40,760 --> 00:22:44,920
Speaker 5: way they measure operating risk RWAs risk weighted assets based

456
00:22:45,000 --> 00:22:48,919
Speaker 5: on the feed businesses you have. That's completely intellectually counterintuitive

457
00:22:49,200 --> 00:22:51,800
Speaker 5: to what you want in feed based businesses, which is stability.

458
00:22:52,440 --> 00:22:55,480
Speaker 5: So I don't see why the US financial system should

459
00:22:55,480 --> 00:22:59,880
Speaker 5: be dictated by the European regulators, and I just don't

460
00:23:00,040 --> 00:23:01,479
Speaker 5: see that's where it's going to end up. I think

461
00:23:01,520 --> 00:23:04,320
Speaker 5: there'll be there'll be a lot of discussion, and my

462
00:23:04,520 --> 00:23:07,119
Speaker 5: guess is none of this gets implemented before the end

463
00:23:07,160 --> 00:23:10,399
Speaker 5: of twenty twenty six, so several years to adjust, and

464
00:23:10,480 --> 00:23:14,440
Speaker 5: we carry currently a two hundred and sixty basis point

465
00:23:14,920 --> 00:23:18,359
Speaker 5: capital buffer. Our CT one ratio this quarter was fifteen

466
00:23:18,440 --> 00:23:21,960
Speaker 5: point five percent. Our requirement under seek how is twelve

467
00:23:22,000 --> 00:23:26,440
Speaker 5: point nine percent. So we are very conservatively positioned in

468
00:23:26,560 --> 00:23:29,959
Speaker 5: anticipation whatever changes may happen. But again, Shinali, the key

469
00:23:30,000 --> 00:23:31,760
Speaker 5: is they're going to happen over years. This isn't going

470
00:23:31,840 --> 00:23:32,359
Speaker 5: to be tomorrow.

471
00:23:32,520 --> 00:23:34,560
Speaker 15: But the changes that would happen would still be under

472
00:23:34,600 --> 00:23:36,560
Speaker 15: a new regime at Morgan Stanley, would be under a

473
00:23:36,560 --> 00:23:38,520
Speaker 15: new executive. Do you think that, I hope so the

474
00:23:38,640 --> 00:23:42,440
Speaker 15: bank will have to make changes around its business lines

475
00:23:42,560 --> 00:23:44,920
Speaker 15: if these rules were to be as stringent as these.

476
00:23:44,880 --> 00:23:48,120
Speaker 4: No, I don't think so. No, we won't change our strategy.

477
00:23:48,160 --> 00:23:50,960
Speaker 5: I mean we'd make adjustments on iwas and parts of

478
00:23:51,000 --> 00:23:51,439
Speaker 5: the business.

479
00:23:51,520 --> 00:23:53,639
Speaker 4: But no, it's manageable.

480
00:23:53,720 --> 00:23:56,440
Speaker 5: It's just I'm separating is it manageable from is it

481
00:23:56,520 --> 00:23:59,159
Speaker 5: the right thing to do? And I don't think the

482
00:23:59,560 --> 00:24:02,120
Speaker 5: US economy is what matters here. And for the US

483
00:24:02,119 --> 00:24:05,280
Speaker 5: economy to thrive, we need a strong banking system led

484
00:24:05,280 --> 00:24:07,600
Speaker 5: by the largest banks in the country, and we should

485
00:24:07,680 --> 00:24:10,120
Speaker 5: determine what is the right capital structure of our banks,

486
00:24:10,400 --> 00:24:12,800
Speaker 5: not have it determined by some other body outside of

487
00:24:12,880 --> 00:24:13,240
Speaker 5: this country.

488
00:24:13,280 --> 00:24:15,000
Speaker 4: In the national interest, we should do it.

489
00:24:15,119 --> 00:24:17,520
Speaker 15: That old saying that if you squeeze Wall Street like

490
00:24:17,560 --> 00:24:20,399
Speaker 15: a sponge, the activity will move elsewhere. And a lot

491
00:24:20,440 --> 00:24:22,760
Speaker 15: of your rivals have said that they're very concerned about

492
00:24:22,760 --> 00:24:25,119
Speaker 15: the activity moving outside of the banking system into the

493
00:24:25,200 --> 00:24:28,600
Speaker 15: non banks. Do you share that concern And what are

494
00:24:28,680 --> 00:24:31,440
Speaker 15: the risks that are emerging that are maybe going unnoticed.

495
00:24:32,119 --> 00:24:36,639
Speaker 5: Well, there's always you know, if you pressure the regulatory

496
00:24:36,720 --> 00:24:39,280
Speaker 5: part of the industry, it will move to the non

497
00:24:39,359 --> 00:24:42,160
Speaker 5: regulated part because they don't have the same capital charges

498
00:24:42,200 --> 00:24:43,040
Speaker 5: that we have.

499
00:24:43,240 --> 00:24:44,960
Speaker 4: So yes, that is a real risk.

500
00:24:45,359 --> 00:24:47,399
Speaker 5: And in fact, and again not to get too weedy,

501
00:24:47,440 --> 00:24:50,320
Speaker 5: but it's something called the supplemental levertrature, which simply takes

502
00:24:51,119 --> 00:24:52,720
Speaker 5: the amount of capital you have on the size of

503
00:24:52,800 --> 00:24:56,960
Speaker 5: your balance sheet, basically hurts you for carrying a large

504
00:24:57,000 --> 00:24:59,920
Speaker 5: balance sheet, even if it's all treasuries and you participate

505
00:25:00,080 --> 00:25:02,879
Speaker 5: in the treasuries market to provide liquidity to the broader

506
00:25:02,920 --> 00:25:03,760
Speaker 5: financial system.

507
00:25:04,480 --> 00:25:07,280
Speaker 4: So yes, there are consequences from decisions.

508
00:25:07,320 --> 00:25:10,639
Speaker 5: And that's why the regulators sensibly have asked for and

509
00:25:10,720 --> 00:25:13,439
Speaker 5: we'll ask for a very long comment period and they

510
00:25:13,440 --> 00:25:16,360
Speaker 5: will get vigorous comment from me and from others, I'm

511
00:25:16,400 --> 00:25:19,200
Speaker 5: quite firm on this. We don't need a complete redo

512
00:25:19,359 --> 00:25:22,199
Speaker 5: of the capital system here, and we'll make the cases to.

513
00:25:22,240 --> 00:25:23,879
Speaker 4: Why that's so. James, what about you?

514
00:25:24,280 --> 00:25:27,480
Speaker 15: What does life after Morgan Stanley look for you? Do

515
00:25:27,520 --> 00:25:30,399
Speaker 15: you think you'll stay in financial services or consider a

516
00:25:30,520 --> 00:25:32,760
Speaker 15: career somewhere else, perhaps politics.

517
00:25:33,560 --> 00:25:36,320
Speaker 4: No, I'm very happy with my life. You know.

518
00:25:36,680 --> 00:25:39,960
Speaker 5: My focus is on handing it over to my successor

519
00:25:40,800 --> 00:25:44,000
Speaker 5: and making sure they have what I described as the

520
00:25:44,080 --> 00:25:47,040
Speaker 5: cleanest plate possible. So as many of that, we have

521
00:25:47,119 --> 00:25:49,160
Speaker 5: a few remaining issues that I want to work through

522
00:25:49,880 --> 00:25:53,040
Speaker 5: and get those cleaned up. And probably based on my experience,

523
00:25:53,080 --> 00:25:55,359
Speaker 5: I can handle some of this stuff more easent than

524
00:25:55,440 --> 00:25:56,560
Speaker 5: somebody's starting day one.

525
00:25:56,880 --> 00:25:59,600
Speaker 4: And after that, I don't know. I'm Australian. I'll spend

526
00:25:59,600 --> 00:26:01,200
Speaker 4: a little time with my family there.

527
00:26:01,240 --> 00:26:04,800
Speaker 5: I'll obviously keep working in some capacity, and I'll teach

528
00:26:04,800 --> 00:26:05,320
Speaker 5: you a little bit.

529
00:26:05,440 --> 00:26:08,159
Speaker 4: And you know who knows the beauty of life is.

530
00:26:08,200 --> 00:26:10,360
Speaker 5: There are a lot of things to do, so I'm

531
00:26:10,400 --> 00:26:12,000
Speaker 5: embracing that, enthusiastic about it.

532
00:26:14,560 --> 00:26:17,600
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533
00:26:17,640 --> 00:26:21,040
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534
00:26:21,359 --> 00:26:24,080
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