The Morgan Stanley 2014 U.S. Financials Conference is on. Yesterday, James Gorman - Morgan Stanley CEO and a former senior partner in McKinsey & Co's financial services practice, elaborated his ideas on the future strategy of the firm. Among other things, Gorman confirmed that Morgan Stanley has been eliminating jobs in FX and rates trading and that M&A is a growth area. Less promisingly, Gorman said that Morgan Stanley plans to restrict the compensation ratio at its investment banking unit to 40% or less (it was 47% in the final quarter of 2013), suggesting Morgan Stanley's investment bank staff might have their pay trimmed (further) in future.
As an ex-senior McKinsey man, Gorman might think that he has a few things to teach bankers about the expression of strategic ideas through the medium of the PowerPoint presentation. Some people in banking might disagree. However, if you want to present like Gorman here's a distillation of his PowerPoint best practice.
It all begins with a chart-heavy pastiche on how much Morgan Stanley has improved.
Use emotive words. Think green arrows. Green is the colour of fertility.
Everyone's heard of 'synergies', but Gorman spoke too of 'adjacencies.' The FX business has 'adjacencies' to other institutional securities businesses, said Gorman. And the rates business has 'strong adjacencies' to other businesses.
These adjacencies seem to be a good thing. No one likes to see a neighbour disappear.
Morgan Stanley has some, 'signature institutional franchises' in investment banking (IBD) and equities, said Gorman. Both these businesses are doing rather well. Morgan Stanley's equities business in particular has been outperforming key rivals (AKA Goldman Sachs).
There was a time (in 2011), when Morgan Stanley was hiring for its 'growing' fixed income trading business. In 2010 Gorman himself reportedly set a target for trading revenues of $26 billion, up $10bn on 2009, led by a resurgence in fixed income, currencies and commodities revenues. However, in the 12 months ending December 31st 2013 trading revenues at Morgan Stanley were a mere $9bn and Morgan Stanley has changed its mind about expanding in fixed income. The bank is now 'optimizing' its business, cutting risk weighted assets, and focusing on generating returns rather than revenues.
Gorman glossed over Morgan Stanley's history of FICC strategy reversals by using a chart depicting industry-wide fixed income revenue changes, rather than anything specific to Morgan Stanley's own business.