Speaker 1: Good morning.
Speaker 2: I'm Nathan Hager and I'm Karen Moscow. Here are the
Speaker 2: stories we're following today.
Speaker 1: We wrap up a very busy few days for big
Speaker 1: bank earnings with Goldman Sachs reporting this morning. Bloomberg Intelligence
Speaker 1: senior analyst Dallison Williams tells us what investors will be
Speaker 1: looking for.
Speaker 3: The important thing we'll be looking at is trading. How
Speaker 3: is that holding up on a core basis, you know,
Speaker 3: versus some of the competition. What are they doing in
Speaker 3: terms of buybacks? And then aside from some of these
Speaker 3: impairments and sevens costs, what's the core run rate for expenses?
Speaker 3: They had set out sort of an ambitious target at
Speaker 3: Investor Day, they reaffirmed that, but not going to do
Speaker 3: that anytime soon. So I think that's the question, is
Speaker 3: one can that get sort of closer to their target.
Speaker 1: Bloomberg Intelligence senior analyst Allison Williams says revenue from advising
Speaker 1: on M and Day transactions is poised to slump thirty
Speaker 1: five percent.
Speaker 2: Meanwhile, Nathan, it was quite a day on Wall Street
Speaker 2: for Goldman rival Mark and stan Lee that bank stock
Speaker 2: search more than six percent after CEO James Gorman said
Speaker 2: the worst is over for the industry's downturn in trading
Speaker 2: and investment banking.
Speaker 4: I do believe it's bottomed.
Speaker 5: Every ceo I'm talking to has tilted to a more
Speaker 5: forward looking pasture. So I think deals will stock getting done.
Speaker 5: Whether they happen in the back half of this year,
Speaker 5: I'm not so sure. It might be, it might be
Speaker 5: next year that it comes to It will definitely be.
Speaker 5: It will be during next year when we see it,
Speaker 5: if not this year.
Speaker 2: And Morgan Stanley CEO James Gorman made the comments in
Speaker 2: an interview with the Bloombergs and Ali Basik. Here more
Speaker 2: of that conversation in just a few minutes.
Speaker 6: Well, Kary.
Speaker 1: The earnings continue to roll in, with twenty companies in
Speaker 1: the S and P five hundred reporting today, and Bloomberg's
Speaker 1: John Tucker joins us to look at two of the
Speaker 1: big ones.
Speaker 7: John and Nathan Tesla reports After the close, Investor is
Speaker 7: going to be looking for more details on the much
Speaker 7: delayed cyber truck. They also want to know about how
Speaker 7: a series of price cuts cut into margins. They did
Speaker 7: make dramatic cuts of as much as twenty nine percent
Speaker 7: of their best selling model. Tesla's stock is up one
Speaker 7: hundred and thirty eight percent since the start of the year.
Speaker 7: The adjusted earnings per share estimate is eighty one cents.
Speaker 7: Streaming giant Netflix also reports after the close. The expectations
Speaker 7: there are high. A crackdown on passwords sharing manlet to
Speaker 7: a jump in subscriptions. Companies add subscription tier may also
Speaker 7: show some promise, and Netflix stock that's a sixty one
Speaker 7: percent year to date. In New York, I'm John Tucker,
Speaker 7: Bloomberg Day Break.
Speaker 2: All right, John, Thanks well. Shares of Carvana are down
Speaker 2: about eight percent in early trading. The used car retailer
Speaker 2: surprised investors with a last minute change to its earnings plans.
Speaker 2: The company now intends to release second quarter results before
Speaker 2: the market opens this morning. Carvana did not say why
Speaker 2: it moved up the release, which was previously set for
Speaker 2: August third.
Speaker 1: In the UK, Karen, we have an encouraging reading on
Speaker 1: inflation this morning. Let's get that from Bloomberg's U and
Speaker 1: Potts in London. Good morning, Ewan, Good morning, Nathan, and Karen.
Speaker 8: Britain's inflation rate has finally dropped blow eight percent, the
Speaker 8: pound falling this morning after CPI in the year to
Speaker 8: June came in at seven point nine percent, better than
Speaker 8: economists were expecting and a shop drop from the previous reading.
Speaker 8: Core inflation also dropped, but is still at six point
Speaker 8: nine percent, a level which the Bank of England and
Speaker 8: UK consumers will find far from comfortable. But head of
Speaker 8: the Bank's meeting early next month, investors are today pairing
Speaker 8: back bets on a shop further shop fall, a further
Speaker 8: shop rise in interstrates in London, Immune Pot's Pimberg day.
Speaker 2: Break all right you in, thank you well. In political news,
Speaker 2: legal pressure continues to mount on former President Donald Trump.
Speaker 2: The first pre trial hearing has been held in the
Speaker 2: classified documents case against him, but there's still no word
Speaker 2: on a trial date, and Bloomberg's Ed Baxter has the latest.
Speaker 9: Trump's attorneys do not want to date set now and
Speaker 9: potentially to be held off until after the twenty twenty
Speaker 9: four election. Judge Aleen Cannon did express some skepticism about that,
Speaker 9: as well as the government's arguments now. Setting a schedule
Speaker 9: for coming months is usually an uncontroversial step on a
Speaker 9: typical trial, but this is not a typical or usual
Speaker 9: proceeding scheduling Trump trials continues to get more and more
Speaker 9: complicated as the cases against him mount. In San Francisco,
Speaker 9: I'm at Baxter Bloomberg Daybreak.
Speaker 1: And there's one more case aid. The State of Michigan's
Speaker 1: filed charges against sixteen Republicans who put themselves forward as
Speaker 1: alternative electors for then President Trump in twenty twenty. This
Speaker 1: came on the same day the former president said he's
Speaker 1: been told he's a target of the Justice Department investigation
Speaker 1: into January sixth, all.
Speaker 2: Turning to the White House, Nathan, there's been a major
Speaker 2: development that could affect US China relations. The Biden administration
Speaker 2: has officially cut funding for the Wuhan Institute of Virology.
Speaker 2: Now it's a facility at the center of the COVID
Speaker 2: nineteen lab leak theory, and Bloomberg's Amy Morris explains from
Speaker 2: our ninety nine one newsroom in Washington.
Speaker 10: Bloomberg News has obtained a memo in which the Department
Speaker 10: of Health and Human Services formally notified the Wuhan laboratory
Speaker 10: of the suspension and that it is seeking to cut
Speaker 10: it off permanently. An AHHS review raised concerns that the facility,
Speaker 10: based in Wuhan, China, where COVID first emerged, is violating
Speaker 10: biosafety protocols and is not complying with US regulations. This
Speaker 10: is so far the most drastic action taken by the
Speaker 10: US over the lab's failure to share information into COVID's origins.
Speaker 10: The Wuhan Lab can contest the suspension and proposed department
Speaker 10: in Washington. I Mamy Morris, Bloomberg Daybreak.
Speaker 1: Okay mee, thank you. Finally, there is no end in
Speaker 1: sight for the heat dome that's been making the South
Speaker 1: for weeks. Phoenix, Arizona, has had nineteen straight days above
Speaker 1: one hundred and ten degrees. That's the longest streak since
Speaker 1: nineteen seventy four. It could keep going the rest of
Speaker 1: the week. It's supposed to hit one hundred and fifteen
Speaker 1: in Phoenix today and one hundred and sixteen tomorrow into Friday.
Speaker 1: Let's take a look now at some of the stories
Speaker 1: making news in New York and around the world with
Speaker 1: Bloomberg's Michael Barr.
Speaker 6: Good morning, Michael, Good morning, Nathan. More potential locations are
Speaker 6: being investigated in the Gilgo Beach serial killings. Authorities in
Speaker 6: South Carolina and Nevada are looking into property is owned
Speaker 6: by the Long Island men accused of murdering three women
Speaker 6: and dumping their bodies more than a decade ago. Rex
Speaker 6: Hureman is being held without bail on suicide Watch. New
Speaker 6: York investigators scoured his home, where they've already retrieved more
Speaker 6: than two hundred guns. The Texas Department of Public Safety
Speaker 6: is investigating allegations that state troopers were ordered to push
Speaker 6: back those attempting to cross the border, including children, into
Speaker 6: the Rio Grande and Eagle Pass, and deny people water
Speaker 6: during extreme heat. US Congressman Greg Kassar and other lawmakers
Speaker 6: are blaming Governor Abbots border security policies, pushing.
Speaker 11: Kids back into the water, putting razor wire around buoys
Speaker 11: to create drowning devices. This isn't just illegal, It is
Speaker 11: not just wrong. It is something that the federal government
Speaker 11: has the ability to stop.
Speaker 6: Governor Rabbit's office defended the barbed wire and other safety measures,
Speaker 6: stating in part, Texas is deploying every tool and strategy
Speaker 6: to deter and repel illegal crossings. Defense Secretary Lloyd Austin
Speaker 6: says an American soldier crossed the demilitarized Zone from South
Speaker 6: Korea into North Korea.
Speaker 4: One of our service members who was on.
Speaker 6: A tour will pu Ley and without authorization, crossed the
Speaker 6: military demarcation line.
Speaker 4: We believe that he is INDPRK custody.
Speaker 6: The soldier, twenty three year old Army Private Travis King,
Speaker 6: was apparently expected to be sent home following two months
Speaker 6: in a detention center when he fled a possible break
Speaker 6: in the cold murder case of Tupatchakor. Police searched a
Speaker 6: home in the Las Vegas area in connection with a
Speaker 6: nineteen ninety six feetal drive by shooting of the rapper.
Speaker 6: He was lost for months, adrift in the Pacific for
Speaker 6: more than twelve hundred miles on a disabled catamaran with
Speaker 6: no way to cook and no source of fresh water
Speaker 6: but the rain. But Australian Timothy Shaddock with his dog
Speaker 6: says he was rescued this week by a fishing crew.
Speaker 12: Look, I'll always be in the water, you know, I
Speaker 12: don't know how far out in the ocean, and again
Speaker 12: I'll be you know, But I think I'm I just
Speaker 12: love love.
Speaker 6: Nightshet Shadick said at one point he expected to die.
Speaker 6: Global News twenty four hours a day, powered by more
Speaker 6: than twenty seven hundred journalist nanalysts over one hundred and
Speaker 6: twenty countries. I'm Michael Barr, and this is Bloomberg Nathan.
Speaker 13: Thanks Michael.
Speaker 1: Time now for the Bloomberg Sports Update. Here's John Stasha.
Speaker 4: Thanks Nathan. Wild Night.
Speaker 13: In baseball, twelve teams scored ten or more runs, Corney
Speaker 13: the Elias Sports Bureau. That has happened before, back in
Speaker 13: ninety four eighteen ninety four Minnesota, Cleveland, the Dodgers all
Speaker 13: scored ten times. The Cubs went for seventeen. Arizona won
Speaker 13: in Atlanta sixteen to thirteen, and three games finished eleven
Speaker 13: to ten, including the Mets in white Sox in City Field.
Speaker 13: Didn't look like that would.
Speaker 7: Happen two to one.
Speaker 14: Swinging a fly ball Santie left center field.
Speaker 13: He got another one who Ron Avarez.
Speaker 14: Two run shot with a twenty one year older rounds
Speaker 14: the basis for the second time tonight. The Met's taking
Speaker 14: eleven four lead on Alvarez his nineteenth hall run of the.
Speaker 13: Year, WCBS so eleven to four, seventh in in Chicago,
Speaker 13: then closed within one twice had the time run on.
Speaker 4: The Mets held on to win.
Speaker 13: So all this scoring, and then there are the Yankees,
Speaker 13: who had two hits on a five to one loss
Speaker 13: of the Angels, the Yanks eighth loss the last ten games.
Speaker 13: They are fifteen and twenty one since the Aaron Judge
Speaker 13: toe injury. They played this afternoon, having already lost this series.
Speaker 13: It's the fourth series they've lost in July, all four
Speaker 13: against teams with sub five hundred records. Golfin England Open
Speaker 13: Championship one hundred and fifty first edition teen off early
Speaker 13: tomorrow morning at Royal Liverpool. Last time he was held
Speaker 13: there in twenty fourteen, Rory McElroy won that, and though
Speaker 13: he hasn't won a major since twenty fourteen, he's the
Speaker 13: betting favorite this week. The United States, not surprisingly the
Speaker 13: betting favorite to win the Women's World Cup soccer for
Speaker 13: the third time in a row. Begins tomorrow. The US
Speaker 13: takes on Vietnam Friday in New Zealand. John dash Hour
Speaker 13: Bloomberg Sports.
Speaker 7: From coast to coast, from New York to San Francisco.
Speaker 6: Boston to Washington, DC, nationwide on Syrias Exam, the Bloomberg
Speaker 6: Business Appen Bloomberg dot Com.
Speaker 1: This is Bloomberg Daybreak. Good morning, I'm Nathan Hager. Have
Speaker 1: we reached bottom? In trading and investment banking. The CEO
Speaker 1: of Morgan Stanley, James Gorman, thinks so. In a conversation
Speaker 1: with Bloomberg Shanale basse At, Gorman discussed investment bank activity
Speaker 1: and finding his successor after he recently announced he does
Speaker 1: plan to leave his position. They also dug into new
Speaker 1: capital proposals and how those could affect the US banking system.
Speaker 1: So let's listen.
Speaker 5: In fourteen years, is it's a long time to do
Speaker 5: anything and to run a global bank and deal with
Speaker 5: all the changes that are going on in the world.
Speaker 5: You know, it's important for organizations to refresh. So I
Speaker 5: think it's certainly a very long time to be a
Speaker 5: bank CEO, and everybody's going to find their own agenda.
Speaker 5: My focus is on ensuring that this place does well
Speaker 5: over the next ten and twenty years. To do that,
Speaker 5: you need to give the next generation a chance, and
Speaker 5: they will do things differently and they will grow the
Speaker 5: place in a way that I might might not have imagined.
Speaker 4: So it's exciting, it feels right.
Speaker 15: What criteria is the board using to choose a new CEO?
Speaker 15: I mean, it's a big open question on whom I
Speaker 15: take over next you've said there are three candidates, how
Speaker 15: do we think about who the next person is?
Speaker 5: Well, I think you've got you look at a whole
Speaker 5: range of criteria. The first and obvious one is that
Speaker 5: they're good at running businesses. And you know, when I
Speaker 5: took over the job, I was actually running the smallest
Speaker 5: and worst performing part of the company, but we were
Speaker 5: turning it around. So the board wants to know they're
Speaker 5: good business leaders. But the other qualities which every institution,
Speaker 5: be it educational, government or not for profit or public
Speaker 5: companies look for in leaders its endurance, resilience, strategic sense,
Speaker 5: communication skills, all the obvious stuff that you'd expect. And
Speaker 5: fortunately we've got three fabulous candidates. They're all internal and
Speaker 5: they all have great business skills. And now the board has,
Speaker 5: you know, the opportunity to figure out who's the best
Speaker 5: to lead Morgan Stanley for the years ahead the Morgan
Speaker 5: sane that we're going to become.
Speaker 4: So I think they can all do it.
Speaker 15: If you think about just how much Morgan Stanley has
Speaker 15: changed and the investments you've made in wealth management, investment management,
Speaker 15: and frankly, the idea here that the profitability of the
Speaker 15: wealth manager is just through the roof and frankly a
Speaker 15: lot more than you're seeing even in institutional securities.
Speaker 4: Does it make more.
Speaker 15: Sense for the future leader to come from some of
Speaker 15: those growth areas well.
Speaker 5: I'm not going to get into speculating, which is, you
Speaker 5: know what I'm sure you'd like me to do. But
Speaker 5: the board doesn't look so much at how a specific
Speaker 5: business is performing. They look at again the enduring qualities
Speaker 5: of the leader and whether they have the kinds of
Speaker 5: skills you need to lead a complex global institution. And
Speaker 5: as I said, all three of the people we have
Speaker 5: internally are terrifically well equipped. They're great people, they have
Speaker 5: great respect for each other, they have terrific values. So
Speaker 5: you know we've got an embarrassment of riches as well.
Speaker 15: I'll say, how do you focus on culture during this transition?
Speaker 15: How do you ensure that whoever doesn't get the job
Speaker 15: stays on board? Is that something you worry about?
Speaker 11: No?
Speaker 5: Really, no, I think you know we've worked together for
Speaker 5: I think with this team plus the other senior leadership
Speaker 5: people like Sharona Shire, our CFO is on the call,
Speaker 5: Eric Grossman, our chief legal officer, Carol vincent Green, who
Speaker 5: runs internal audit We've had a very significant leadership team
Speaker 5: working closer together for a long period of time. What
Speaker 5: matters about cultures. You share the same values and we
Speaker 5: share the same value. There's no there won't be the
Speaker 5: drama that people perhaps look for in succession around this
Speaker 5: particular one.
Speaker 4: I'm convinced.
Speaker 5: I think it will be relatively seamless, and I think
Speaker 5: it will lead to a great outcome.
Speaker 15: Now we have to about the numbers here, because Wealth
Speaker 15: Management two hundred billion dollars in net new money for
Speaker 15: the first half of the year, and it's quite breathtaking.
Speaker 15: It's certainly nothing to cry about here. How much of
Speaker 15: this is a function of the dislocations in the market
Speaker 15: the business that you've taken on from First Republic or
Speaker 15: Silicon Valley Bank, I.
Speaker 5: Would think I don't know exactly, but my guess is
Speaker 5: less than ten percent related to that. So ninety percent
Speaker 5: related to just the change in the business model that
Speaker 5: we've put in place over the last you know, fifteen years,
Speaker 5: and that business now led by Andy Sepstein, have figured
Speaker 5: out a variety of ways to grow client activity, whether
Speaker 5: it's through direct through the e trade platform and the
Speaker 5: digital bank, whether it's through the workplace, which we did
Speaker 5: first with Solium the acquisition, then the e trade workplace,
Speaker 5: the advisor lay channel. We've had very low turnover advisors,
Speaker 5: and we still seem to be the place of choice
Speaker 5: for many of our competitors financial by So it's the
Speaker 5: beauty of it is it's no one single thing. This
Speaker 5: quarter it was a bit more advisor driven than it
Speaker 5: was last quarter, but all of them are contributing.
Speaker 4: That's why I think it's going to endure.
Speaker 15: When you look at the stock price on my way
Speaker 15: over here, it was up more than seven percent. You're
Speaker 15: on track to have the best performance in trading right
Speaker 15: after and early's released in your tenures certainly of not
Speaker 15: history here. So what do you think investors are latching
Speaker 15: onto when they look at today's numbers?
Speaker 4: I think I should retire right today.
Speaker 5: Isn't this the moment where you drop the mica or something?
Speaker 4: Then who's in the c Yeah, I know that's not
Speaker 4: going to happen. Nice try Oh listen.
Speaker 5: We had some big movements in the stock when it
Speaker 5: was very low back in twelve and fourteen and sixteen,
Speaker 5: twenty twelve, fourteen, sixteen, No, but today's big. But it's
Speaker 5: just reflective of the fundamentals are really strong. Our capital ratios.
Speaker 5: I mean, we'll see when all the banks reported were
Speaker 5: close to the end of the major banks, but I'm
Speaker 5: pretty sure we've got the highest capital levels of any bank,
Speaker 5: any major bank in the US.
Speaker 4: The net new money.
Speaker 5: Numbers your reference are obviously evidence of growth, and now
Speaker 5: dividend is four percent or close to it. So combination
Speaker 5: of really high conservative capital levels, obvious organic growth within
Speaker 5: a couple of core businesses, and very high dividend yield
Speaker 5: for what we do. I think the investors sensibly look
Speaker 5: past what's been going on in the market recently. You know,
Speaker 5: IPO activities obviously down, m and A activities down, Some
Speaker 5: of the fixed income trading was a little more muted.
Speaker 5: None of that matters, right, strategically, that doesn't matter. That's
Speaker 5: a point in time. Market sentiment that will change. Deals
Speaker 5: will get done, companies will go public, people will trade.
Speaker 5: So I think the market sensibly looked at the big
Speaker 5: picture items and said, yeah, the rest of the stuff
Speaker 5: will just come, and that's why we're trading the way
Speaker 5: we're trading.
Speaker 4: It was a great clean quarter when you look.
Speaker 15: At investment banking trading advice when do they come back
Speaker 15: and how robust will that activity be?
Speaker 5: Well, I think I don't know when exactly. I do
Speaker 5: believe it's bottomed. And we were just talking before we
Speaker 5: got on air. You know, I've been to in the
Speaker 5: last couple of months Australia, Japan, Saudi, France, England, Ampstin,
Speaker 5: I mean, and all over the US, and every CEO
Speaker 5: I'm talking to has tilted to a more forward looking pasture.
Speaker 5: So I think deals will start getting done. Whether they
Speaker 5: happen in the back half of this year, I'm not
Speaker 5: so sure. It might be, it might be next year
Speaker 5: that it comes to It will definitely be. It will
Speaker 5: be during next year when we see it, if not
Speaker 5: this year.
Speaker 15: James, what does all of this mean for headcount? You've
Speaker 15: booked more than three hundred million dollar cost tied to
Speaker 15: severance packages, but it seems like headcount is starting to stabilize.
Speaker 15: Do you think that a rebound in some of this
Speaker 15: activity means that you could bring more people on or
Speaker 15: do you still see more cuts in some areas?
Speaker 5: Not really, I mean, we we laid off about eighteen
Speaker 5: one hundred people last December, and we knew that was
Speaker 5: an optimistic view and I said to the team, if
Speaker 5: by April things haven't turned, we'll have to, unfortunately do
Speaker 5: it again, and we ended up laying off another three
Speaker 5: and a half thousand people. Now, against that backtrop we've
Speaker 5: had attrition I think is running almost fifty percent what
Speaker 5: historical rates are.
Speaker 4: We've got eighty three thousand employees.
Speaker 5: We bought two huge companies each Trade and Eat Advance,
Speaker 5: and we guaranteed everybody their job during COVID, So headcount was,
Speaker 5: if you will, artificially high. I regarded this as bringing
Speaker 5: us back to what the normal run rate should be.
Speaker 5: I don't think we're going to add to that. I mean,
Speaker 5: one of the beauties of this business it's very scale driven.
Speaker 5: If you do a few more trades, you don't need
Speaker 5: more people to do it for the same client. So no,
Speaker 5: I think we're about right with headcount right now. But
Speaker 5: obviously you know we're we're we've got fiducial responsibility shareholders
Speaker 5: deliver returns, and we watched that carefully.
Speaker 15: You know, your views sound fairly rosy. I mean it
Speaker 15: sounds like you are pretty sanguine about the direction of
Speaker 15: travel here across different business lines. Earlier, this week's Secretary Treasury.
Speaker 15: Yellen had told us that she believes that there might
Speaker 15: not be a recession.
Speaker 4: Do you agree with that view?
Speaker 5: Well, I've said publicly for over a year I thought
Speaker 5: the probability of recession was low, and if we have one,
Speaker 5: the magnitude is likely to be relatively modest. So I've
Speaker 5: been sort of between probability low, so likely we don't
Speaker 5: have a recession, and if we do, it's not going
Speaker 5: to matter that much. And I think things are playing
Speaker 5: out that way. I mean, Chairman Powell said it. You know,
Speaker 5: it is possible to have self landing, right, It's been done.
Speaker 5: I think six of the last eleven rate increased periods.
Speaker 5: I believe I'm right in saying that there've been self landing.
Speaker 5: So it's not a given to have a recession. With
Speaker 5: unemployment where it is, inflation now coming down under four percent,
Speaker 5: unemployment still under four percent, decent economic growth, stable markets,
Speaker 5: the banking system balance sheets are strong, and consumer balance
Speaker 5: sheets are okay.
Speaker 4: That's a pretty good backdrop.
Speaker 5: Now, some industry sectors obviously hurting more than others, but
Speaker 5: you're seeing it in the earnings this quarter. The earnings
Speaker 5: are not really bad, they're not great, but they're not disappointing.
Speaker 15: So then what keeps you up at night to the
Speaker 15: extent that anyone thing can derail kind of this progress
Speaker 15: in the economy, What would it be?
Speaker 5: I mean, the real macro hashue, if you step back
Speaker 5: from it, is the China US relationship. The GDP of
Speaker 5: those two countries I think is forty percent of the
Speaker 5: global GDP. They're very dependent. We're very dependent on China.
Speaker 5: China is more dependent on the rest of the world,
Speaker 5: frankly for trade.
Speaker 4: So that's sort of the tipping point.
Speaker 5: I mean, there's an existential one, which is the US
Speaker 5: to faulding on its debt. That didn't happen. It's insane
Speaker 5: that we should even be having these discussions. But thankfully
Speaker 5: they got through the charade again. But what really matters
Speaker 5: is US China geopolitical relationships for global trade and economic expansion,
Speaker 5: and within that. You know, you've seen Secretary Blincoln and
Speaker 5: now Secretary Yellen in the last month, both going there.
Speaker 5: We're getting to a more constructive tone. So you know,
Speaker 5: but Chanelli, honestly, after all the years of doing this,
Speaker 5: I don't worry a lot at night.
Speaker 4: I mean, stuff happens, and you deal with it.
Speaker 5: You have a strategy which is designed to carry the
Speaker 5: company forward for a decade or more, and you accept
Speaker 5: the inevitable disappointment sloan the way or the things that
Speaker 5: go wrong, and that's just part of being in leadership job.
Speaker 15: Speaking of the next ten years, there is something around
Speaker 15: the corner that has the potential to impact some of
Speaker 15: the biggest businesses you have, and that is that Buzzle
Speaker 15: three end game. Sure new regulations in the United States
Speaker 15: and across the globe that are targeting now fee based businesses,
Speaker 15: which has become a big part of your business, as
Speaker 15: well as trading businesses. How do you expect those rules
Speaker 15: to eventually impact the returns on those businesses?
Speaker 4: Yeah?
Speaker 5: Well, firstly, and I'll try not to get too weedy,
Speaker 5: but the rule hasn't been proposed yet. We've had Buzzer one,
Speaker 5: Buzzle two, Buzzle three, so I joke finally we're at
Speaker 5: the end because they're now calling it buzzle three endgame,
Speaker 5: so I guess we're not going to get four and five.
Speaker 5: Europe has not even caught up and complied with its own.
Speaker 4: Buzz or rules.
Speaker 5: The US has had a system parallel to buzzle called
Speaker 5: SECA and all of the banks have come through CCA
Speaker 5: this cycle very well, so based upon Vice Chair bars speech,
Speaker 5: clearly they're going ahead with a holistic so they look
Speaker 5: at CCARM buzzle review that will be proposed in a
Speaker 5: couple of weeks. I expect it to be pretty challenging
Speaker 5: for the banking system at first blush. But if you
Speaker 5: read the speech by the Vice Chair and various other commentary,
Speaker 5: it is clear that they want input and they're going
Speaker 5: to need input. There are things that were proposed under
Speaker 5: the European system that I just don't think are appropriate
Speaker 5: for the US system, like, as you said, changing the
Speaker 5: way they measure operating risk RWAs risk weighted assets based
Speaker 5: on the feed businesses you have. That's completely intellectually counterintuitive
Speaker 5: to what you want in feed based businesses, which is stability.
Speaker 5: So I don't see why the US financial system should
Speaker 5: be dictated by the European regulators, and I just don't
Speaker 5: see that's where it's going to end up. I think
Speaker 5: there'll be there'll be a lot of discussion, and my
Speaker 5: guess is none of this gets implemented before the end
Speaker 5: of twenty twenty six, so several years to adjust, and
Speaker 5: we carry currently a two hundred and sixty basis point
Speaker 5: capital buffer. Our CT one ratio this quarter was fifteen
Speaker 5: point five percent. Our requirement under seek how is twelve
Speaker 5: point nine percent. So we are very conservatively positioned in
Speaker 5: anticipation whatever changes may happen. But again, Shinali, the key
Speaker 5: is they're going to happen over years. This isn't going
Speaker 5: to be tomorrow.
Speaker 15: But the changes that would happen would still be under
Speaker 15: a new regime at Morgan Stanley, would be under a
Speaker 15: new executive. Do you think that, I hope so the
Speaker 15: bank will have to make changes around its business lines
Speaker 15: if these rules were to be as stringent as these.
Speaker 4: No, I don't think so. No, we won't change our strategy.
Speaker 5: I mean we'd make adjustments on iwas and parts of
Speaker 5: the business.
Speaker 4: But no, it's manageable.
Speaker 5: It's just I'm separating is it manageable from is it
Speaker 5: the right thing to do? And I don't think the
Speaker 5: US economy is what matters here. And for the US
Speaker 5: economy to thrive, we need a strong banking system led
Speaker 5: by the largest banks in the country, and we should
Speaker 5: determine what is the right capital structure of our banks,
Speaker 5: not have it determined by some other body outside of
Speaker 5: this country.
Speaker 4: In the national interest, we should do it.
Speaker 15: That old saying that if you squeeze Wall Street like
Speaker 15: a sponge, the activity will move elsewhere. And a lot
Speaker 15: of your rivals have said that they're very concerned about
Speaker 15: the activity moving outside of the banking system into the
Speaker 15: non banks. Do you share that concern And what are
Speaker 15: the risks that are emerging that are maybe going unnoticed.
Speaker 5: Well, there's always you know, if you pressure the regulatory
Speaker 5: part of the industry, it will move to the non
Speaker 5: regulated part because they don't have the same capital charges
Speaker 5: that we have.
Speaker 4: So yes, that is a real risk.
Speaker 5: And in fact, and again not to get too weedy,
Speaker 5: but it's something called the supplemental levertrature, which simply takes
Speaker 5: the amount of capital you have on the size of
Speaker 5: your balance sheet, basically hurts you for carrying a large
Speaker 5: balance sheet, even if it's all treasuries and you participate
Speaker 5: in the treasuries market to provide liquidity to the broader
Speaker 5: financial system.
Speaker 4: So yes, there are consequences from decisions.
Speaker 5: And that's why the regulators sensibly have asked for and
Speaker 5: we'll ask for a very long comment period and they
Speaker 5: will get vigorous comment from me and from others, I'm
Speaker 5: quite firm on this. We don't need a complete redo
Speaker 5: of the capital system here, and we'll make the cases to.
Speaker 4: Why that's so. James, what about you?
Speaker 15: What does life after Morgan Stanley look for you? Do
Speaker 15: you think you'll stay in financial services or consider a
Speaker 15: career somewhere else, perhaps politics.
Speaker 4: No, I'm very happy with my life. You know.
Speaker 5: My focus is on handing it over to my successor
Speaker 5: and making sure they have what I described as the
Speaker 5: cleanest plate possible. So as many of that, we have
Speaker 5: a few remaining issues that I want to work through
Speaker 5: and get those cleaned up. And probably based on my experience,
Speaker 5: I can handle some of this stuff more easent than
Speaker 5: somebody's starting day one.
Speaker 4: And after that, I don't know. I'm Australian. I'll spend
Speaker 4: a little time with my family there.
Speaker 5: I'll obviously keep working in some capacity, and I'll teach
Speaker 5: you a little bit.
Speaker 4: And you know who knows the beauty of life is.
Speaker 5: There are a lot of things to do, so I'm
Speaker 5: embracing that, enthusiastic about it.
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