Morgan Stanley CEO Ted Pick said Monday that higher interest rates for a long period of time are “good for business.”
“I think this is really good for our business because we’ve spent a lot of time refining our strategy,” Pick said at a financial services conference hosted by Morgan Stanley Research.
Central bank policymakers have warned investors to expect interest rates to remain elevated following a string of elevated inflation measures and unexpectedly strong economic data in the first quarter.
The Federal Reserve is expected to leave interest rates on hold at their highest level in 23 years on Wednesday and reduce the number of cuts expected for the remainder of 2024.
Current interest rate trends pose challenges for many banks that rely heavily on the spread between deposit rates and lending income, as well as for banks with significant exposure to certain types of troubled borrowers.
But Pick said Morgan Stanley’s strategy, developed by his predecessor, James Gorman, protects the firm from the risks of a high-interest rate environment.
“We know that in emerging markets we don’t do unsecured credit or credit cards through the loan cycle,” he said. “Those are great businesses, but [what] We do, and that’s why the discipline that James crystallized is so important.”
Pick took over as CEO earlier this year after Gorman announced his decision to retire and made it clear that Gorman’s plans would remain in place.
“While there has been a change in management, our strategy remains the same,” he said in his 2024 shareholder letter.
Since then, Morgan Stanley shares have risen just 3%, underperforming larger Wall Street rivals. Shares were roughly flat on Monday.
Last quarter’s profit rose more than analysts had expected from the same period a year earlier, thanks to higher fees from investment banking, trading and asset management.
Investment banking fees increased 19% year-over-year, primarily due to increased underwriting of equity and debt transactions for initial public offerings (IPOs) and corporate bond issuances.
Pick said Monday that better integration of Morgan Stanley’s investment banking, trading, wealth management and asset management is key to the firm’s future growth.
He highlighted Morgan Stanley’s stock plan administration business for corporate clients as a way to collaborate with other parts of the firm, such as investment banking.
Pick also discussed how artificial intelligence could boost Morgan Stanley’s investment banking revenue.
“There’s a huge flywheel of activity,” he said, pointing to clients in the utilities, communications, real estate and technology sectors that will see increased demand as the trend takes hold.
Morgan Stanley offers a suite of artificial intelligence products to its wealth management clients known as AI at Morgan Stanley (AIMS), and Pick said some of the bank’s products could already save financial advisors 10 to 15 hours of their time per week.
Morgan Stanley and other big banks are awaiting a final decision later this year on new capital requirements that were first proposed about a year ago.
Executives now expect the final requirements will be less onerous than the original proposal, which may mean banks have more leeway to return some of the excess capital they currently hold to shareholders.
Pick did not say what the company has planned but acknowledged that it is focusing on dividends as a way to reward shareholders.
“As a shareholder, I care very much about dividends. I think they are a symbol of the strength and stability of our company, so they are sacred,” he said, adding that share buybacks, along with investing in growing the company, are also ways to use excess capital.
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