Thunderclouds were gathering in April when James Gorman, Morgan Stanley’s chief executive, went for a run on the beach on Amelia Island in Florida after attending a closed-door meeting of the bank’s top stockbrokers.
The New York Times reports that after just a few miles, the storm began to pick up speed, prompting Gorman to turn around and head for safety.
Gorman did not get soaked, and his company has become better at avoiding the sort of squalls that have battered the bank in recent years. Morgan Stanley’s stock is up 59% this year. Last month, the bank reported strong third-quarter earnings that reflected the results of Gorman’s three-year effort to reduce risk-taking and to expand into the safer business of advising people on how to manage their wealth.
'I felt for a long time that path was clear, but it was disputed and we were doubted many times', Gorman said recently.
Morgan Stanley was known for years for its swagger and its willingness to take big trading risks. Nevertheless, it was unable to pull back in time in during the financial crisis and sustained significant losses, forcing it to take a $9bn lifeline in 2008 from a foreign bank. That prompted Gorman to change course.
The transformation has not been easy, and Gorman still has some naysayers. Despite the strong third-quarter results, Morgan Stanley produced a return on equity of just 6.2% in the quarter, excluding a charge related to its credit spreads. Simply to cover its debt expenses and other capital costs, Morgan Stanley must achieve a return on equity closer to 10%. Gorman said he hoped the bank would hit that number by 2015.
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