Morgan Stanley’s Gorman: Dodd-Frank to provide clarity to financial markets

Dodd-Frank financial reform gives the nation an important structure to move forward with more clarity on regulatory reform, said James Gorman, president and CEO of Morgan Stanley (MS). “Clarity around what you can and cannot do … is an essential first step to the recovery. We now have that,” he said. “It’s the rulemaking that is now essential.” Gorman spoke Monday at the annual Securities Industry and Financial Markets Association, or SIFMA, conference in New York. He was interviewed by veteran broadcaster Charlie Rose. The public still lacks confidence in Wall Street, Gorman noted, saying the industry has “lost the battle” to convince the consumer that raising capital is vital, he said. “The world should not assume you can take out that capital raising function,” he said. “Folks need to understand the whole system is shut down. You need a little bit of patience to rebuild. We are in a culture where patience is not highly regarded.” In responding to a question about what he learned during the financial crisis, Gorman replied, “Leverage is a killer.” Having liquidity at the right moment is clearly needed for survival. He also said he thought the idea of “Too big to fail” was “absurd.” If companies are failing due to poor business decisions and poor management, then they should be allowed to fail no matter the size, he said. Going forward, Gorman said Morgan Stanley will continue to focus on origination, distribution and management of capital, with no plans to expand into areas such as retail banking, insurance or credit card portfolios. He also said it will proceed with its purchase of the remaining 49% of Morgan Stanley Smith Barney from Citigroup but noted that it has wiggle room on when it brings portions of that acquisition online. Morgan Stanley won’t postpone the deal, which is scheduled to be completed by 2014, he said, but it isn’t required to stick with the fastest-possible timetable for completing the acquisition, Gorman said. The Wall Street Journal reported last week that delaying portions of the Smith Barney purchase could give the securities firm more room to meet looming capital requirements. Write to Kerry Curry.

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