After Morgan Stanley's Q4 earnings report beat expectations this morning, CEO James Gorman sat down with Bloomberg TV's Erik Schatzker to answer the question that's been on everyone's mind — is the bloodletting at Morgan Stanley over?
Since the financial crisis, Morgan Stanley has been one of the most aggressive Wall Street banks in terms of cutting costs thorugh layoffs and compensation cuts. Last year the bank cut 4200 employees, this year already it has let go of 1600.
And while the bank did beat analyst expectations of $0.27 with reported profits of $0.45 a share, there is a caveat to that. The beat is ex an accounting charge called debt valuation adjustment (DVA), which places a value on a company's debt. Including DVA, Morgan Stanley's profits hit $0.25 a share.
So Schatzker got down to brass tacks — does that matter? Does it mean there will be more carnage at the bank? Is it over?
Here's Gorman's response (from Bloomberg TV):
"We are very comfortable with the headcount we have right now. These have been tough decisions. No one enjoys going through a restructuring the kind we have been through and other firms on the Street have been going through. Every day, it is a different financial institution. We are down 6000 people from 12 1/2 months ago. It is pretty incredible. That's now built into our run rate of expenses. We feel very comfortable with where we are now. The run rate is now lower as a result of those people coming out."
Then there's the other cost cutting measure Gorman has employed, cutting or deferring compensation. This week, Reuters reported that any employees making $350,000 with a bonus of more than $50,000 (except for wealth managers) would have all of their bonus deferred.
So naturally, Gorman had to address that as well:
"Firstly, it's important to note that over 80% of our employees had no deferrals at all. Honestly, that really matters. The folks that were earning obviously lower in the organization, getting the cash so they can manage their personal finances is very important to us. The senior management had 100% of deferrals, but that money gets paid out over the next six months, 12 months…It aligns our risk profile with our activities so that we have a proper alignment between our interest, our shareholders interest and our employee interest. It reflects the environment we have been operating in."
Gorman also touched on Morgan Stanley's fixed income business and his optimistic view of the global economy in general. Watch the full Bloomberg TV interview below:
