Editor-DN
Longer interest rates are “good for business,” Morgan Stanley ( MS ) CEO Ted Pick said Monday.
“I think it’s really good for our business, because we’ve spent a lot of time refining the strategy,” Puck said at a financial services conference hosted by Morgan Stanley Research.
Central bank policymakers are warning investors to expect rates to remain high after a string of inflation and surprisingly strong economic data during the first quarter.
The Federal Reserve is expected this Wednesday to hold rates at a 23-year high and dial back the number of cuts through the remainder of 2024.
The current rate path presents a conundrum for many banks that rely heavily on the spread between what they pay for deposits and what they earn from their loans and banks that are heavily exposed to certain types of distressed borrowers.
But Puck said the strategy developed by his predecessor, James Gorman, protects Morgan Stanley from the risks of a high-rate environment.
“We know we don’t do unsecured credit through the debt cycle in emerging markets, credit cards,” he said. “These are great businesses, but we know. [what] We do and that’s why it’s so important, the discipline that James crystallized.”
Puck became CEO earlier this year after Gorman announced his decision to retire, making it clear that Gorman’s blueprint would remain in place.
“While there has been a change in leadership, the strategy has not changed,” he wrote in his 2024 letter to shareholders.
Since then, Morgan Stanley’s stock has gained just 3%, underperforming its larger Wall Street rivals. Its stock was almost flat on Monday.
Profits in the last quarter rose more than analysts expected from the year-ago period, thanks to higher fees for investment banking, trading and asset management.
Investment banking fees rose 19% from a year ago, driven largely by higher equity and fixed income underwriting transactions for work on IPOs and corporate bond issuances.
Puck on Monday pointed to better integration of Morgan Stanley’s investment banking, trading, wealth and asset management businesses as a key area for the firm’s future growth.
He highlighted Morgan Stanley’s stock plan administration business for corporate clients as a way to engage with the firm’s other divisions, such as investment banking.
Puck also discussed how artificial intelligence will increase revenue for Morgan Stanley’s investment bank.
“There is a huge flywheel of activity, which will see high demand as the trend takes off,” he said, pointing to clients in the utilities, telecommunications, real estate, and technology sectors.
Morgan Stanley has a set of artificial intelligence products that it offers clients in its wealth and asset management division called AI at Morgan Stanley (AIMS). Some of the firm’s products already save its financial advisors 10 to 15 hours per week, according to Puck.
Morgan Stanley and other big banks are awaiting a final decision this year on new capital requirements that were initially proposed nearly a year ago.
Executives now expect the final requirements to be less stringent than the initial proposal. This may mean that banks will be free to return to shareholders some of the excess capital they currently hold.
Without saying what the firm plans to do, Puck admitted he favors dividends as a way to reward shareholders.
“I really care about the dividend as a stockholder … I think it’s a symbol of our strength, our stability … so it’s sacrosanct,” he said, adding that along with stock buybacks Investments to expand the firm were also potential uses of excess capital. .
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