Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Let's get now speaking
Speaker 1: of to Bloomberg's Lisa Abromwitch. She is standing by with
Speaker 1: the CEO of Morgan Stanley, Ted Pick.
Speaker 2: Let's get you straight over to that interview. Lisa, Thank
Speaker 2: you so much.
Speaker 3: I am sitting here at Morgan Stanley's headquarters in New
Speaker 3: York with Ted Pick, the one and only, the chair
Speaker 3: and the CEO of Morgan Stanley, after an earnings result
Speaker 3: that you led off with by just saying Morgan Stanley
Speaker 3: had a record quarter mic drop.
Speaker 2: What led that kind of strength?
Speaker 1: We have a team that I'm so proud of, and
Speaker 1: we've been building our firm for all these years, and
Speaker 1: we got the strategy set now over the last couple
Speaker 1: of years, raised, managed and allocate capital for clients who've
Speaker 1: got a wealth and investment manager alongside investment bank and
Speaker 1: the integrated firm. Are those divisions working together. So it
Speaker 1: begins and ends with the team. It's one quarter next quarter,
Speaker 1: but I'm really proud of Morgan Stanley Blue today.
Speaker 3: There's a question about the trading and sales volumes and
Speaker 3: how they absolutely blew expectations out of the water, particularly
Speaker 3: at Morgan Stanley for both FIC and equities. How much
Speaker 3: does this stem for good volatility versus bad volatility, because
Speaker 3: sometimes when things are kind of moving around, it hasn't
Speaker 3: led to those kinds of results. But this quarter seemed
Speaker 3: to have been a real boon for Wall Street.
Speaker 4: I think you're right about that.
Speaker 1: The crisis in the Middle East began to bubble up,
Speaker 1: and folks were thinking going into twenty twenty six, this
Speaker 1: would be a year of investment, banking tailwinds, large cap
Speaker 1: corporate health momentum, upside trade. And then this exogenous event
Speaker 1: was creeping up, but it wasn't sort of like a
Speaker 1: bang COVID that became pretty quickly uninvestable.
Speaker 4: Correlation of assets and the only thing you can do
Speaker 4: is put your pencil down.
Speaker 1: This was one where folks thought, well, we'll see how
Speaker 1: the conflict evolves, but I'd like to express a view.
Speaker 1: Perhaps I want to hedge some of my portfolio, perhaps
Speaker 1: I want to diversify. So you start seeing dispurgeon activity.
Speaker 1: And our job with MORTGANE. Stanley is to bring content
Speaker 1: like you and then to get folks to act, and
Speaker 1: if they're in a mood to act, we're effectively moving
Speaker 1: inventory market making our best ideas and then their buyers
Speaker 1: and sellers for hedging, insurance and the like, and so
Speaker 1: in that sense, some volatility is a good thing because
Speaker 1: you can.
Speaker 4: Sort of measure.
Speaker 1: Where it becomes bad is if it's risk off and
Speaker 1: people say, wow, I can't do anything to put their
Speaker 1: pencils down. So, yes, this was a good vall environment
Speaker 1: because we were close to clients and those clients were
Speaker 1: listening to our content and evolving and trying to measure
Speaker 1: through scenarios, and that work both inequities and fixed income.
Speaker 3: What's fascinating is it also worked in the banking side.
Speaker 3: Usually when you have that kind of volatility, it isn't
Speaker 3: good for capital markets on the primary side because people
Speaker 3: are concerned, they sit on their hands, they don't do
Speaker 3: some of the deals that we're expected.
Speaker 2: That was not the case in the first quarter.
Speaker 4: Much.
Speaker 2: Do you see that pipeline which you talked.
Speaker 3: About on the earnings call being resilient and solid coming
Speaker 3: to truition given the fact that there has been an
Speaker 3: easing and some of the tensions in the Middle East.
Speaker 1: Well, that's an interesting point you're making that typically when
Speaker 1: you effectively have market making to sort of protect you're
Speaker 1: not going to have the risk spirits of the new
Speaker 1: issue market or the M and A market functioning at
Speaker 1: the same time. And I think the M and A
Speaker 1: market and the new issue market worked in part because
Speaker 1: there was so much tailwind from the beginning of the year,
Speaker 1: and in certain sectors the AI ecosystem, even with geopolitics,
Speaker 1: they were able to keep going.
Speaker 4: So the question that hopefully.
Speaker 1: Will become a hypothetical would have been if the conflict
Speaker 1: had gone for a number of quarters and we started
Speaker 1: to see energy costs get effectively imported from Asia through.
Speaker 4: Europe to the US, what would that do.
Speaker 1: To the calendar, both the M and A calendary, the
Speaker 1: IPO calendar. And I hope that question will be for
Speaker 1: another day or maybe no day. Today's question is if
Speaker 1: the conflict can be boxed at some level, would we
Speaker 1: expect the coming to the market of these great companies
Speaker 1: but also smaller, very high quality sponsor companies to either
Speaker 1: come via IPO or to engage in the M and
Speaker 1: A trade That has been sort of the log jam
Speaker 1: of the last couple of years.
Speaker 4: And I think we're seeing in pipelines that.
Speaker 1: Both corporates and sponsors want to come so I think
Speaker 1: what you could have as a period now we'll still
Speaker 1: have some volatility, maybe not the very high levels of
Speaker 1: charge activity at the beginning of the year that was
Speaker 1: generally speaking good for trading desks. Maybe you'll see more
Speaker 1: of a normalization of those types of activities. Remember, now
Speaker 1: the volatility measures already elevated, so the price of buying
Speaker 1: incremental insurance is high. But then importantly, the core corporate
Speaker 1: finance life cycle that we've been looking at over the
Speaker 1: last couple of years. Hopefully we can resume against SMP
Speaker 1: seven and fifteen percent earnings growth, and we can we
Speaker 1: can keep going.
Speaker 4: But the only caveat i'd make here lease is there are.
Speaker 1: Going to be some companies they're just not They're still
Speaker 1: not ready. They're in, they're locked in sponsor portfolios, and
Speaker 1: they can need even more time. Five years not enough,
Speaker 1: they need six seven years because of the higher rate
Speaker 1: of interest and to sort of carry the debt. But
Speaker 1: they are going to be other companies clearly that want
Speaker 1: to come, and we're beginning to see the lead sponsors
Speaker 1: and lead companies. Not necessarily these megacaps, those are coming
Speaker 1: in any case, but the next year of companies we
Speaker 1: see in bakeofs sort of like M and A versus
Speaker 1: IPO type of bakeoff. We're seeing those, We're seeing those happening,
Speaker 1: and I think.
Speaker 3: That augurs, well, what needs to happen for those deals
Speaker 3: to all come to market? Does it depend on rates
Speaker 3: coming in or volatility staying relatively needed or where it is?
Speaker 3: I mean, what are some of the sponsors and some
Speaker 3: of the CEO is talking about here?
Speaker 1: I think the biggest risk continues to be that inflation
Speaker 1: gets imported around the world again through the energy complex,
Speaker 1: and eventually it works this way through the food and
Speaker 1: general living ecosystem and becomes that becomes challenging, that that
Speaker 1: queers the cost of capital and effectively then you start
Speaker 1: talking about the R word.
Speaker 4: The good news we're not talking about the R word, and.
Speaker 1: So that you know that that translates into I think,
Speaker 1: you know, sort of continue momentum and high quality companies
Speaker 1: and the wealth piece of the spectrum is continuing to deploy,
Speaker 1: continuing to want to engage. So I think if there
Speaker 1: is some sort of and again I don't want to
Speaker 1: use the phrase it's a serious and complex issue, but
Speaker 1: sort of a better understanding, maybe a narrative the cone
Speaker 1: of uncertainty around what is happening in the Middle East
Speaker 1: that I think is going to be enough for folks
Speaker 1: to say, Okay, you know what, I can sort of
Speaker 1: manage through the imputed energy costs in the back end
Speaker 1: of twenty twenty six, and we're going to continue with
Speaker 1: sort of the game plan. The game plan is to
Speaker 1: get bigger to defease the cost of a I remember
Speaker 1: the regulatory backdrop very favorable, and then the need to
Speaker 1: defease the.
Speaker 4: Cost of AI real you put those two together.
Speaker 1: I'm not saying bigger is better for everyone, but bigger
Speaker 1: is better might be hip again.
Speaker 3: Well, and we heard about that from United speculating or
Speaker 3: some speculation that you might United might buy American Airlines.
Speaker 3: If that gets through, what's next, Augus Stanley buying Golden Sacks.
Speaker 2: I mean, how big could it get?
Speaker 3: Should there be some sort of regulatory green light potentially
Speaker 3: to even some of the big players.
Speaker 1: Right well on mergers inside of our space, I'll make
Speaker 1: you gave me an opening to make a comment on that.
Speaker 1: I think one of the interesting phenomena of the last
Speaker 1: couple of years and one of the things I've learned
Speaker 1: in this job is that the quality of the management
Speaker 1: teams and the quality of the business models of our
Speaker 1: closest competitors is very high quality. This is so important
Speaker 1: for us to have vibrant competitors now in a period
Speaker 1: when the economy is hopefully going to really have another
Speaker 1: leg where we are able to conduct some of the
Speaker 1: businesses that we've been wishing to conduct and have been
Speaker 1: curtailed from conducting during this tough regulatory patch that we
Speaker 1: went through for the better part of twenty years. Now
Speaker 1: that we're able to compete in our traditional businesses, a
Speaker 1: lot of these firms have internal growth prospects, different models
Speaker 1: from each of the firms.
Speaker 4: You know very well where we'll.
Speaker 1: Be competing, but we don't actually need to go in organic.
Speaker 1: I mean, there may be ways where you want to
Speaker 1: bolt on, for example and incremental business, but in our case,
Speaker 1: we have the wealth and Investment Manager, we have the
Speaker 1: investment bank on a global basis, and the organic growth
Speaker 1: potential for those businesses. The tailwinds are enormous, and I
Speaker 1: think with some of our competitors that I want to
Speaker 1: make the pitch for our competitors, I think they have
Speaker 1: similar types of dynamics and The reason that's so important
Speaker 1: is for investors, they want to know that there's embedded,
Speaker 1: durable growth inside of this group that still trades at
Speaker 1: a low teen's multiple.
Speaker 3: One big question, frankly, the most story on the Limbert
Speaker 3: terminal today is about Fedshair independence, President Trump threatening to
Speaker 3: fire Fedhair. J.
Speaker 2: Powell.
Speaker 3: How much does that register in any of what you
Speaker 3: talk about with people or do a lot of people
Speaker 3: view this kind of a noise and the backdrop being
Speaker 3: really stable with respect to inflation expectations, even the institutional landscape.
Speaker 1: Yeah, I think I think sort of the politics of
Speaker 1: the moment tend not to get too much into the
Speaker 1: focus of how you want to express a position, because
Speaker 1: the question becomes sort of the bigger landscape items. Do
Speaker 1: we have interest rate policy that feels like it's on
Speaker 1: a path? Well, I think the answer to that question
Speaker 1: is more so than it was eighteen months ago, but
Speaker 1: for the war. So with the resolution of the war,
Speaker 1: do we feel again like we're on a path where
Speaker 1: there's sort of equilibrium between price stability and employment And
Speaker 1: if it's friendly enough or predictable enough that the CFO
Speaker 1: that she can model what the next five years look like, Well,
Speaker 1: then she's going more comfortable taking to her board the
Speaker 1: idea of buying company XYZ. And likewise, if there's a
Speaker 1: reasonable view of what the economy looks like, because there
Speaker 1: isn't going to be an inflation shock, the acid manager
Speaker 1: can then go about investing in a particular sector and
Speaker 1: trying to generate alpha.
Speaker 3: On the call, you called private credit in its adolescence,
Speaker 3: and you talked about how your exposure is relatively small.
Speaker 3: Where is the fact and where's the fiction when it
Speaker 3: comes to private credit?
Speaker 1: Some of the concerns, Well, I think when I say adolescents,
Speaker 1: I mean a learning it's a learning period.
Speaker 4: You know, it's grown like a weed.
Speaker 1: And that, as you know, is a function of an
Speaker 1: ascia class that didn't exist ten fifteen years ago. Effectively
Speaker 1: the street was replaced on that. It's around a trillion
Speaker 1: seven high yields it about a trillion seven. Levered lending
Speaker 1: is it about a trillion five trillion seven?
Speaker 4: So it's relevant.
Speaker 1: But the ig stack is, you know, is the investment
Speaker 1: grade stack is ten to fifteen trillion.
Speaker 4: It's all credit. It's all credit.
Speaker 1: So all things be equal, if the economy is growing,
Speaker 1: credit does fine. It does fine when there's a recession,
Speaker 1: credit struggles, and then the question is then which of
Speaker 1: the borers we're really doing the work around what's in
Speaker 1: underlying portfolios?
Speaker 4: How quickly was the capital put to work?
Speaker 1: And I think what we're going to see is we're
Speaker 1: going to see dispersion of returns among great asset managers
Speaker 1: who really stuck to their knitting, thought about sector's diversification,
Speaker 1: thought about how long it takes to put those investments
Speaker 1: to work, and manage to do less well, and over time,
Speaker 1: I think the aults will find their place as a
Speaker 1: growing asset class for all kinds of institution investors.
Speaker 3: Ted Pick, We're out of time, which is such a shame.
Speaker 3: I could talk to you for an hour. Ted Pitch,
Speaker 3: the CEO and chair of Morgan Stanley. I'm going to
Speaker 3: send it back to you as we look to an
Speaker 3: incredible earning season for Wall Street Morgan Stanley with a
Speaker 3: record trading at sales, looking to optimism ahead if there
Speaker 3: is some resolution in the Middle East. From New York,
Speaker 3: this is Bloomberg