Morgan Stanley CEO says major threat to banks are ‘stupidity of own management,’ AI
Outgoing Morgan Stanley CEO James Gorman ripped banks’ “stupidity of their own management” as one of the top threats facing Wall Street — right alongside artificial intelligence.
When reflecting on his nearly 14-year tenure at Morgan Stanley to the Financial Times, Gorman — who has less than two weeks left at the firm — said that the banking system has become much safer, though the industry is still facing operational risks including its own top staffers.
This year, there were three high-profile bank collapses in the US — Silicon Valley Bank, Signature Bank and First Republic — all of which Gorman told FT were “entirely their own doing.”
The trio of banks had over $531 billion in combined assets under management — more than all 25 federally insured lenders that failed in 2008 at the onset of the Great Recession.
Gorman, 65, also pointed to Credit Suisse, which collapsed in early March but was scooped up by Switzerland’s UBS by the end of the month for more than $3 billion in an emergency deal.
He referred to the fiasco another example of operational risk management gone awry, according to FT.
“It’s not by chance that the only institution globally, of the systemic [relevant] institutions, to have effectively failed — and they didn’t actually fail from a capital and balance sheet and liquidity perspective — was Credit Suisse,” Gorman told FT.
“They failed from an operating risk and managerial perspective.”
Also during the wide-ranging interview, Gorman issued a bullish outlook for investment banks once the Federal Reserve finishes its aggressive interest rate tightening regime.
Financial markets will “take off” once the benchmark federal-funds rate comes down from its current 22-year high, he told FT.
The Fed has hiked interest rates 11 times from March 2022, when the figure went from virtually zero to its 5.25% to 5.5% range, which has held steady since July in a bid to slow the economy and tamp down inflation.
“The shock of the rate increase recently has put a damper on banking deals [and] capital markets deals,” Gorman told FT. “And that is [because] everybody doesn’t really know what their cost of financing is.”
He continued: “The minute the Federal Reserve has concretely signaled that they’ve stopped raising rates, let alone the point at which they first do a rate cut, these markets will take off. And we are right in the center of where that action is going to be.”
Gorman, meanwhile, says he’s no longer interested in being in the heart of this action on Wall Street.
“I do not want to be CEO anymore. I’ve loved it. I’ve loved all of it. I’ve done it for 14 years, that’s enough,” he told FT.
Ted Pick is set to take Gorman’s top spot. The 54-year-old is a three-decade veteran of the investment bank — and the “exact opposite” of the outgoing boss, insiders told The Post when the change of hands was announced in October.
Representatives for Gorman at Morgan Stanley did not immediately respond to The Post’s request for comment.
