After initial throat-clearing and introductory comments that largely came directly from the earlier earnings release, Morgan Stanley Chairman and CEO James Gorman and CFO Ruth Porat got down to questions and answers from analysts.Notably absent? Any mention of story that has since broken on the 20-30% pay cuts for senior bankers and traders.
Here are the key takeaways, paraphrasing and summarizing Gorman and Porat’s comments:
Gorman on 2012:“Happy to report that prospects look better going forward than since I became CEO two years ago…this management team was determined to clear the decks of legacy issues from 2008 and before…For the first time [since I became CEO] our to do list is not our problem list.”
Gorman on the Morgan Stanley’s business mix: We have “de-emphasised certain securitized products and other Basel III capital intensive business.”
Gorman on the success of the Smith Barney business: In the fourth quarter, we saw “improved flows and margins at MSSB…flows were the highest since we started” the venture.
Porat on EPS: Addressing legacy issues had a “59 cent impact on EPS.”
Porat on Euro exposure disclosure: “for the most part, unfounded commitments and disclosures related to them are consistent with the last quarter…”
Porat on 2012 outlook: “The “banking pipeline is healthy globally. The equities business continues to distinguish itself and the fixed income team is re-establishing itself” after dealing with legacy issues such as the MBIA settlement.
Porat on Morgan Stanley debt issuance: “Plain vanilla debt issuance should be lower [in 2012]…we [now] have $66 billion holly owned deposits and these deposits are attractive sources of funding…[Morgan Stanley’s partnership with] MUFG opened up new funding options open to us.”
Prorat on business year to date: “Two weeks is not a quarter. [We] ended the year feeling good about the state of the markets: lots of cash on the sidelines, the equity [issuance] pipeline has been on hold and the M&A pipeline is healthy. There are still uncertainties in the euro zone though…”
Gorman on macro view: The “US is more healthy than perceived and that EU is likely to work itself out”
Gorman on why his introductory comments focused on the partnership with Mitsubishi UFJ Financial Group: “How many times in the history of financial services have you seen a cross border equity partnership like this?…the world at large did not appreciate the strategic importance of this transaction…[it is] important to get this message out there.”
Porat on deferred compensation: In “Institutional Services we took comp down meaningfully per person. We took down defer all rate from 60 per cent to 40 per cent. This resulted in a higher compensation cost despite a reduction in comp per person…it was really about 2011 being a transition year.”
Porat on opportunities created by European banks capital issues: “We are focused on it across industries given the strength of our banking franchise globally but particularly in Europe. So we are expecting opportunities to help clients raise capital and restructure balance sheets. But if you look back at 2008, European bank took share from US banks when US banks were going through a capital raise period…”
Gorman on the same topic: “as the players in the 10-20 range exit, that business will flow to us in the top range. So that restructuring [among European banks] should benefit us.
Gorman on increasing disclosures of European exposures: “We feel very comfortable with our exposure so we’ve expanded our disclosure…We were bewildered by the hysterics that surrounded our exposure last year” and that lead to increased disclosure