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Speaker 1: Welcome to our Bloomberg television and radio audiences. I'm standing

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Speaker 1: by with a very special interview and exclusive with James Gorman,

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Speaker 1: the executive chairman of Morgan Stanley recently stepped down from

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Speaker 1: his post as CEO, and this is the first interview

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Speaker 1: in your new role as executive chairman. What's your most

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Speaker 1: urgent priority.

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Speaker 2: Well, it was obviously to come and do this interview

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Speaker 2: with you as my first priority.

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Speaker 3: You know, it's just support.

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Speaker 2: It and he's a terrific guy, will be a great CEO,

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Speaker 2: and my job really is to help him as best

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Speaker 2: as I can, but stay out of the road.

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Speaker 3: So that's really my priority.

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Speaker 1: It's interesting I've heard you used to write a handwrite

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Speaker 1: a checklist of priorities at the start of every year.

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Speaker 1: If you think about how you change gears into executive chairman,

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Speaker 1: what does that checklist this year look like.

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Speaker 3: I didn't write it this year.

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Speaker 2: I did that when I was CEO for fourteen years,

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Speaker 2: and it gave me a framework for focusing on a

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Speaker 2: few big things that matter, because in these jobs, there

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Speaker 2: are thousands, literally thousands of issues that come at you

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Speaker 2: and you can easily lose sight of the stuff that

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Speaker 2: actually matters, which is a few big things. So every

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Speaker 2: year I would tea up on the first day I

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Speaker 2: came into the office, which was yesterday, I came in

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Speaker 2: and write down the list of ten things, and you know,

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Speaker 2: one of them was always no new mistakes, which I

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Speaker 2: defined as things that cost us more than half a

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Speaker 2: billion of capital. Sometimes they were personal like stay fit

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Speaker 2: or get fit, or sometimes they're about development and leadership

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Speaker 2: with our top team. But no different jobs, so different

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Speaker 2: you've got you've got to switch. So that's what I've done.

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Speaker 1: You know, I'm glad you brought up mistakes because to

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Speaker 1: the extent that we learned from life's challenges. I'm curious

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Speaker 1: about your single moment. What is the biggest mistake you

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Speaker 1: ever thought you've made at Morgan Stanley. You know, this

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Speaker 1: is an exit interview. It's a chance to look back

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Speaker 1: at the last decade or so.

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Speaker 2: You know it might sound I'm modest. I don't think

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Speaker 2: we made a lot of big misses. I mean, the

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Speaker 2: if you look at the major things that we did,

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Speaker 2: whether they were the deals Smith Barney, each trade eat

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Speaker 2: advance succession, which is critical navigating through COVID. You know,

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Speaker 2: we got frankly most of the big stuff, right. I

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Speaker 2: wish we hadn't sold Van Camp and when we sold

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Speaker 2: it to Marty Flanagan Invesco, So that was something I

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Speaker 2: think it took a little too long to get the

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Speaker 2: full team that I wanted in place in the right jobs.

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Speaker 2: But you know, you can't do these jobs and not

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Speaker 2: make missas. When I see a mistake, I embrace it.

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Speaker 2: You know, it's like kipling those travelers of success and failure.

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Speaker 2: You to embrace them both because if you're not making mistakes,

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Speaker 2: the chances are you're not doing enough. So I never

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Speaker 2: see a mistake as a negative. I just see it

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Speaker 2: as something you learn from move forward.

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Speaker 1: You know, it's interesting you're standing on top of a

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Speaker 1: mountain now. You've had a tremendous amount of success at

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Speaker 1: Morgan Stanley, but those first couple of years were rocky.

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Speaker 1: Were you ever worried in those first few years you'd

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Speaker 1: be ousted before you can enact a turnaround?

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Speaker 2: No, you know, I thought, listen what I felt back then.

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Speaker 2: We had to act, and we had to act aggressively.

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Speaker 2: And I knew that whatever we chose to do there

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Speaker 2: would be critics. That didn't bother me one little bit

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Speaker 2: because we're in trouble as it was, so my job

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Speaker 2: was to do something about it, not listen to the

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Speaker 2: critics of what we can't do, but figure out what

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Speaker 2: we can do. So I was highly confident that we'd

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Speaker 2: make choices and I.

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Speaker 3: Thought they'd pay off.

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Speaker 2: I thought the rebalancing in the business model was the

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Speaker 2: right choice, so I didn't I just didn't listen to

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Speaker 2: the critics.

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Speaker 1: It's funny you kind of got Morgan Stanley at rock bottom,

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Speaker 1: if you will. But a lot of investors think Ted

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Speaker 1: Pick's job is even harder because he is on a

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Speaker 1: high note. What do you think Ted's biggest challenge is

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Speaker 1: going to be?

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Speaker 2: Oh, I don't think. I don't think it's hard or easier.

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Speaker 2: They're just different. You go through different cycles. I mean,

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Speaker 2: the Morgan Center I've had for the last five years

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Speaker 2: is very different from the first five.

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Speaker 3: Or the middle middle four. You know.

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Speaker 2: For Ted, he's got one of the biggest and most

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Speaker 2: successful companies in the world, phenomenal brand, he's a great

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Speaker 2: colture carriers. So I'm sure the cultural stay in track.

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Speaker 2: The real choices will be strategic. So when opportunities come

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Speaker 2: to move left or move right, how do you do that,

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Speaker 2: how aggressively do you do it and when do you

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Speaker 2: do it? So's they're really the choices. And in the

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Speaker 2: first year while I'm here, I'll obviously share with him

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Speaker 2: whatever views I have on stuff if he wants that,

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Speaker 2: But in the lady years, he'll have his team working

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Speaker 2: with him on that, so I'm confident about that.

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Speaker 1: We'll talk more about strategy in a second. But another thing,

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Speaker 1: as you transition to executive chairman, you have roles now

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Speaker 1: outside of the bank, and succession is arguably one of

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Speaker 1: the most important things you could do as a manager,

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Speaker 1: and a big new responsibility for you is serving on

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Speaker 1: the board of Disney, ironically, where succession has been one

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Speaker 1: of the biggest issues. How does Disney live past Bob Iger?

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Speaker 2: Well, firstly, I mean Bob Iger is a phenomenal executive.

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Speaker 2: I mean he is iconic for a reason. He's led

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Speaker 2: that company through so many cycles and really is a

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Speaker 2: gifted leader. So it's a great pleasure to work with them.

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Speaker 2: But it's not for me to judge Disney's future. I've

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Speaker 2: enjoined the board yet. I'm starting I think February fourth

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Speaker 2: or February second, I'm sure early February I'm looking forward

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Speaker 2: to it. I like dealing with complex situations. The changes

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Speaker 2: going on in that industry are profound and there are

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Speaker 2: choices to be made, so that to me is very interesting.

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Speaker 2: And obviously given the experience I've had leading succession with

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Speaker 2: our board here with Dennisonally the head of our comp committee,

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Speaker 2: and Tom Glossa, they head lead director, you know, hopefully

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Speaker 2: I can add something to the succession committee that I'll

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Speaker 2: be joining.

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Speaker 1: What about pricing challenges outside of success at Disney? Do

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Speaker 1: you think that there's anything that could be immediately addressed

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Speaker 1: as they contend with activists?

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Speaker 2: Well, you know, and they're always We've had how many

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Speaker 2: activists do we have here? We had at least two,

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Speaker 2: and I think they each had two bites at the Apple.

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Speaker 2: So no, that is not what the focus should be on.

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Speaker 2: The focus should be on strategic choices companies make. But

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Speaker 2: again I haven't joined the board, so I can't. I

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Speaker 2: can't talk about a company I'm not even an insider on.

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Speaker 2: That wouldn't be fair to the team.

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Speaker 1: More strategic decisions at Morgan Stanley. One massive question. You've

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Speaker 1: built this massive wealth management business mostly in the United States.

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Speaker 1: You have talked previously about the idea of Morgan Stanley

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Speaker 1: internationally expanding more. Do you think Morgan Stanley though, can

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Speaker 1: be a giant international wealth manager?

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Speaker 3: Oh? Sure, there are a lot of wealthy people in

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Speaker 3: this world.

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Speaker 2: I think population just tipped eight b and and you know,

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Speaker 2: I've just come back from a long trip through Asia,

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Speaker 2: through Thailand and Singapore, Hong Kong, and I was in

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Speaker 2: Europe last week. I've been all over there. There are

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Speaker 2: plenty of pockets of opportunities. So it's a question of

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Speaker 2: where you where you pick your shots. I mean that

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Speaker 2: where you pick your spots, there are endless opportunities. And

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Speaker 2: I think our Asia business, we have a wealth business

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Speaker 2: in Asia. It's small ish but growing very fast. Obviously

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Speaker 2: that's a focus Japan. I think with our partner AMUFG

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Speaker 2: is a tremendous focus that I suspect Ted and the

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Speaker 2: team will do even more with which he's already started

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Speaker 2: doing on the trading side.

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Speaker 3: So there are endless opportunities. I'm not worried about.

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Speaker 1: What are the biggest challenges with China in particular, are

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Speaker 1: given the rising geopolitical tensions and the state of the

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Speaker 1: economy there, or.

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Speaker 2: China has you know, China has some fundamental challenges. First

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Speaker 2: and foremost is demographics. The one child policy guaranteed the

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Speaker 2: population is going to shrink, and right when you need

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Speaker 2: more productive working people coming through to support the older generation,

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Speaker 2: they've got few of them, and they don't have good immigrations.

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Speaker 2: So I think China has some profound challenges on demographics.

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Speaker 2: It has profound challenges in terms of building a consumption economy.

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Speaker 2: You know that there's still an export savings driven economy.

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Speaker 2: So but on the other hand, China's one point four

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Speaker 2: bm people, second largest economy in the world and gross

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Speaker 2: domestic product. It's it's a key factor in global economic health.

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Speaker 1: And so beyond Asia expansion. If you think about the

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Speaker 1: wealth management space, even in the US, there's another thing

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Speaker 1: that's happening that a lot of financial advisors are thinking

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Speaker 1: about in particular, and that is the approval actually or

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Speaker 1: the lack thereof, of a Bitcoin spot ETF in the

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Speaker 1: United States. When you think about what wealthy clients invest in,

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Speaker 1: when you think about the future of wealth management, do

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Speaker 1: you think bitcoin is a suitable investment.

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Speaker 3: I've never been.

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Speaker 2: You know, I've never really understood the value of bitcoin

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Speaker 2: as a form of stored value. Others have and others

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Speaker 2: have made a lot of money on it. I joked once,

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Speaker 2: I wish I bought it at sixty dollars, and I'm

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Speaker 2: glad I didn't buy it at sixty thousand. It's clearly speculative.

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Speaker 2: I think it should play for wealthy people a very

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Speaker 2: small role in their financial fabric because it's so speculative,

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Speaker 2: it's so volatile, and again it's going through enormous regulatory

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Speaker 2: change and industry disruption is seen with some classic failures

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Speaker 2: of late, so some big coints not going away. It's

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Speaker 2: not a fad. I just don't think it's a core investment.

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Speaker 2: I think it's a speculative asset, of which there are

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Speaker 2: plenty of choices.

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Speaker 1: Speaking of regulation, you've been very vocal about the new

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Speaker 1: regulations being made in the United States about bank capital,

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Speaker 1: about operational risk. Do you believe the rules are likely

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Speaker 1: to change before implementation based on your recent discussions with

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Speaker 1: regulators and what do you think they will look like

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Speaker 1: at the end.

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Speaker 3: Oh, they'll definitely change.

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Speaker 2: I mean they put out an extended comment period which

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Speaker 2: got extended further. There have been thousands of comments put

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Speaker 2: into the various regulatory bodies led by the FED. It

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Speaker 2: was a proposal that I would say was extremely aggressive

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Speaker 2: and set a marker. It will not go through in

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Speaker 2: that form. If it did, I think it would have very,

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Speaker 2: very negative consequences for corporate lending across this country, which

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Speaker 2: is not what you want. It's not going to help

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Speaker 2: the economy growth.

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Speaker 3: Well.

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Speaker 1: You've also spoken about the treasury market potential impacts from regulation.

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Speaker 1: We've already seen stresses of late in the treasury market.

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Speaker 1: Do you have fears that those stresses will be exacerbated.

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Speaker 2: I can't tell until I see the actual rules, But

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Speaker 2: all I know is what was put out is highly

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Speaker 2: highly highly unlikely to be what it's ultimately regulated.

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Speaker 3: Now.

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Speaker 2: Investors don't necessarily see that or agree with it. But

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Speaker 2: in my experience, I've been in this a long time.

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Speaker 2: I was on the FED board for six years in

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Speaker 2: New York. I chared the fac in Washington. I think

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Speaker 2: this is a highly aggressive proposal that will be materially

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Speaker 2: wound back when it finally becomes law.

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Speaker 1: Regulation now, there has been tighter capital rules posed under

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Speaker 1: the Biden administration. There's also been a lot of regulatory

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Speaker 1: actions taken against banks. If the Republicans take the White

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Speaker 1: House in twenty twenty four, whether Donald Trump or another contender.

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Speaker 1: Do you expect that this tighter regulatory environment will just

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Speaker 1: fully unwind.

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Speaker 3: It's too hard to predict, you know.

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Speaker 2: I think we're in you know, you see pendulums, and

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Speaker 2: we swung to lighter regulation to I think an excessive proposal.

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Speaker 2: I think it'll swing back. So it's heading back to

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Speaker 2: more balance regulation, and that's where it should be. I'm

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Speaker 2: all about balance. The banking system should not be deregulated.

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Speaker 2: That would be a nightmare. On the other hand, if

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Speaker 2: you overregulate and you require capital standards that are so

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Speaker 2: high that the banks run investable, they can't grow. That

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Speaker 2: doesn't serve communities.

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Speaker 3: Well.

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Speaker 2: You need prosperous, thriving banks to provide lending products for

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Speaker 2: small businesses and consumers.

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Speaker 1: You know, to the extent we're less than a year

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Speaker 1: away from a speed of bank failures, to the extent

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Speaker 1: that there are still fragilities in the financial system, what

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Speaker 1: are they.

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Speaker 2: I don't think they are a speed of failures. Honestly,

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Speaker 2: I think there were three banks that got it wrong.

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Speaker 2: I've said that publicly. They made choices that were the

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Speaker 2: wrong choices. Wasn't complicated. They got washed up and cleaned

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Speaker 2: up and folded into other banks and you move on.

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Speaker 2: This wasn't People kept telling me we're having a banking crisis.

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Speaker 3: No we're not.

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Speaker 2: We had a crisis among three banks for their shareholders

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Speaker 2: and their employees.

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Speaker 3: It's not a crisis for the market. The core banking

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Speaker 3: system is in rude good health, to use a British expression.

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Speaker 1: Well, you know, it's not just the banking system. If

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Speaker 1: you think about the hedge fund industry, regulators are also

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Speaker 1: very concerned about some fragilities there. It wasn't too long

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Speaker 1: ago that Morgan Stanley lost almost a billion dollars in

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Speaker 1: the week of the collapse of Archagoes. Do you think

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Speaker 1: that there needs to be more safeguards on the non

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Speaker 1: bank system.

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Speaker 2: I mean, it's honestly, there's too many participants in the

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Speaker 2: non bank system to say yo, So no, you'd have

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Speaker 2: to go subset by subset. We talked about payments, we

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Speaker 2: talked about private creditor, go through each of the pieces

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Speaker 2: of it. But there are always risks when you're dealing

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Speaker 2: with leverage and a financial system. But if you don't

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Speaker 2: have leverage, you don't have lending so it's a balance again.

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Speaker 3: I'm always back to there is a balanced.

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Speaker 2: Solution to most of these debates, and you can find

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Speaker 2: it with thought full discussion with regulators.

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Speaker 1: Speaking of leverage, the cost of leverage is higher today

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Speaker 1: than it was a couple of years ago. Where do

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Speaker 1: you think interest rates go added into the end of

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Speaker 1: the year, and what do you think the market starts

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Speaker 1: to look like through twenty twenty four?

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Speaker 3: They go down, as simple as that. How far down?

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Speaker 3: I've got no idea.

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Speaker 2: I mean, I thought that's unlikely the fab would cut

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Speaker 2: rates this year, but inflation has moved down pretty materially

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Speaker 2: quickly that it's now become more likely. So first half

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Speaker 2: of the year, I suspect nothing. Back half of the year,

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Speaker 2: they could easily move a couple They could move a

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Speaker 2: couple of times. The key point is we started this

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Speaker 2: journey with inflation at ten percent, rates at zero, unemployment

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Speaker 2: at three and a half percent, and my objective was

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Speaker 2: to get us to four four and four four percent inflation,

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Speaker 2: four percent rates, four percent unemployment. We're about three percent inflation,

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Speaker 2: we're five percent five and a half in rates, and

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Speaker 2: we're about three and a half in unemployment.

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Speaker 3: So rates will come down.

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Speaker 1: Do you think the economy is in at all clear

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Speaker 1: when it looks like a soft landing versus a hard landing.

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Speaker 1: Do you think that the economy will survive this year

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Speaker 1: in good shape?

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Speaker 3: Economy is fine.

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Speaker 2: I mean there's there's this obsession with the R word recession.

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Speaker 2: I mean, you have recessions. They come and go when

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Speaker 2: you get imbalances between unemployment rates and economic growth. So no,

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Speaker 2: the economy is doing fine. I personally think it is

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Speaker 2: unlikely we'll have a recession, very unlikely we'll have a

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Speaker 2: hard landing.

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Speaker 3: But we'll see.

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Speaker 2: But the odds are clearly in favor of seft landing.

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Speaker 2: I think the Fed's done a great job.

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Speaker 1: Now for you, You've told me before that you would look

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Speaker 1: to teach in your post life at Morgan Stanley, in

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Speaker 1: your life after Morgan Stanley. I want to ask you

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Speaker 1: about that for a moment, because there is a lot

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Speaker 1: of turmoil on college campuses these days. Do you think

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Speaker 1: you would ever take a bigger role at a university

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Speaker 1: given all the political pressures and donor activism that you're seeing.

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Speaker 3: Well, I'm joining.

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Speaker 2: I have been the chair of Columbia Business School for

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Speaker 2: many years, several with Henry Cravis's my co chair and

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Speaker 2: now chair of the school. I'm looking to get more

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Speaker 2: involved at Columbia University in the coming months and I

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Speaker 2: think that'd be great to do. I think, you know,

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Speaker 2: the importance of high quality education for a well functioning

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Speaker 2: society is profound.

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Speaker 3: It's obvious. So yeah, I want to be part of that.

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Speaker 2: And obviously universities this is not the first time universities

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Speaker 2: have been hotbeds of descent and turmoil my whole life.

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Speaker 2: They've been that from when I went to university in

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Speaker 2: Australia in the nineteen seventies, so that.

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Speaker 3: Doesn't bother me.

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Speaker 2: But it's important that people are able to have dialogue

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Speaker 2: and discussion on campus without intimidation and expressing their rights

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Speaker 2: for free speech.

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Speaker 1: What is the next big ambition for James Gorman you

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Speaker 1: mean today?

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Speaker 2: I internally, Morganston is to help TED and to help

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Speaker 2: with our clients around the world. I be a very

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Speaker 2: large client network that I built up over a long

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Speaker 2: career and I think I can help our bankers and

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Speaker 2: others in that regard. For me personally, it's to live

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Speaker 2: in a little bit of a world of unknown for

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Speaker 2: my whole life. I've kind of known what the next

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Speaker 2: steps are. As you mentioned, I've I've joined one public company.

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Speaker 2: We'll be joining one public company board Disney. I'll be

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Speaker 2: getting more involved at Columbia University the months ahead, and

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Speaker 2: then I'll take.

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Speaker 3: It from there.

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Speaker 2: So I don't you know, I want I want balance

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Speaker 2: in my life. I've loved being CEO. It's a phenomenal company.

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Speaker 2: I'm so proud of my colleagues here, the job that

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Speaker 2: they've done. This isn't a one person show. It's thousands

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Speaker 2: of people who are really talented doing the right thing,

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Speaker 2: and ultimately it's the values of the organization which is

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Speaker 2: what drives it. So that's that's what I'm most proud

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Speaker 2: of and for me personally, we'll find out.

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Speaker 1: James, thank you for your time, your first interview in

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Speaker 1: your new role. That's James Gorman, Executive Chairman now of

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Speaker 1: Morgan Stanley for Bloomberg Television and Radio.