Morgan Stanley Chairman and Chief Executive James Gorman speaks at the annual meeting of the Institute of International Finance in Washington, October 10, 2014.
Joshua Roberts | Reuters
Morgan Stanley CEO James Gorman said he is more confident in the markets than the rest of Wall Street, and sees a return of deal-making once the Federal Reserve stops raising interest rates.
“I’m very confident that when the Fed pauses, deal activity and underwriting activity will pick up. In fact, I’d bet on that all year long,” Gorman said during an earnings call Tuesday. “We do not believe that we are entering a dark period. Whatever negativity there is in the world, that is not our house image.”
His comments came as his New York-based firm reported fourth-quarter earnings that beat Wall Street expectations, boosted by the bank’s record asset management revenues and growth in its trading business. Shares of the company rose 6% on Tuesday following the results.
Despite generally better-than-expected results, Morgan Stanley’s investment banking business suffered a major slowdown amid a meltdown in IPOs and debt and equity issuance.
Investment banking revenues were $1.25 billion in the fourth quarter, down 49% from a year ago. The bank said the drop was due to the substantial drop in global equity underwriting volumes and the lower number of M&A completed.
Gorman said deal activity will pick up once financial conditions begin to ease. He said the Fed’s next move is likely to be a smaller rate hike of 0.25 percentage points, followed by a pause. He added that he is not sure whether the central bank will cut interest rates this year.
“I’m a little more confident about the medium-term outlook for the markets,” Gorman said. “We want to make sure we’re positioned for growth. This thing will change. M&A acceptance will come back, I’m sure. So we want to be well positioned for it.”
The Fed has raised its benchmark interest rate to a target range of between 4.25% and 4.5%, the highest level in 15 years, marking the most aggressive policy moves since the early 1980s.
“There’s a lot of money waiting to be put to work. Our job is to be the flow of capital between those who have it and those who need it. So I’m actually pretty confident about the outlook,” Gorman said .
Correction: Morgan Stanley CEO James Gorman said, “Our job is to be the flow of capital between those who have it and those who need it.” In an earlier version, the quote was misrepresented.