Bloomberg Audio Studios, Podcasts, radio News. Let's get now speaking of to Bloomberg's Lisa Abromwitch. She is standing by with the CEO of Morgan Stanley, Ted Pick.
Let's get you straight over to that interview. Lisa, Thank you so much.
I am sitting here at Morgan Stanley's headquarters in New York with Ted Pick, the one and only, the chair and the CEO of Morgan Stanley, after an earnings result that you led off with by just saying Morgan Stanley had a record quarter mic drop.
What led that kind of strength?
We have a team that I'm so proud of, and we've been building our firm for all these years, and we got the strategy set now over the last couple of years, raised, managed and allocate capital for clients who've got a wealth and investment manager alongside investment bank and the integrated firm. Are those divisions working together. So it begins and ends with the team. It's one quarter next quarter, but I'm really proud of Morgan Stanley Blue today.
There's a question about the trading and sales volumes and how they absolutely blew expectations out of the water, particularly at Morgan Stanley for both FIC and equities. How much does this stem for good volatility versus bad volatility, because sometimes when things are kind of moving around, it hasn't led to those kinds of results. But this quarter seemed to have been a real boon for Wall Street.
I think you're right about that.
The crisis in the Middle East began to bubble up, and folks were thinking going into twenty twenty six, this would be a year of investment, banking tailwinds, large cap corporate health momentum, upside trade. And then this exogenous event was creeping up, but it wasn't sort of like a bang COVID that became pretty quickly uninvestable.
Correlation of assets and the only thing you can do is put your pencil down.
This was one where folks thought, well, we'll see how the conflict evolves, but I'd like to express a view. Perhaps I want to hedge some of my portfolio, perhaps I want to diversify. So you start seeing dispurgeon activity.
And our job with MORTGANE. Stanley is to bring content like you and then to get folks to act, and if they're in a mood to act, we're effectively moving inventory market making our best ideas and then their buyers and sellers for hedging, insurance and the like, and so in that sense, some volatility is a good thing because you can.
Sort of measure.
Where it becomes bad is if it's risk off and people say, wow, I can't do anything to put their pencils down. So, yes, this was a good vall environment because we were close to clients and those clients were listening to our content and evolving and trying to measure through scenarios, and that work both inequities and fixed income.
What's fascinating is it also worked in the banking side. Usually when you have that kind of volatility, it isn't good for capital markets on the primary side because people are concerned, they sit on their hands, they don't do some of the deals that we're expected.
That was not the case in the first quarter.
Much.
Do you see that pipeline which you talked.
About on the earnings call being resilient and solid coming to truition given the fact that there has been an easing and some of the tensions in the Middle East.
Well, that's an interesting point you're making that typically when you effectively have market making to sort of protect you're not going to have the risk spirits of the new issue market or the M and A market functioning at the same time. And I think the M and A market and the new issue market worked in part because there was so much tailwind from the beginning of the year, and in certain sectors the AI ecosystem, even with geopolitics, they were able to keep going.
So the question that hopefully.
Will become a hypothetical would have been if the conflict had gone for a number of quarters and we started to see energy costs get effectively imported from Asia through.
Europe to the US, what would that do.
To the calendar, both the M and A calendary, the IPO calendar. And I hope that question will be for another day or maybe no day. Today's question is if the conflict can be boxed at some level, would we expect the coming to the market of these great companies but also smaller, very high quality sponsor companies to either come via IPO or to engage in the M and A trade That has been sort of the log jam of the last couple of years.
And I think we're seeing in pipelines that.
Both corporates and sponsors want to come so I think what you could have as a period now we'll still have some volatility, maybe not the very high levels of charge activity at the beginning of the year that was generally speaking good for trading desks. Maybe you'll see more of a normalization of those types of activities. Remember, now the volatility measures already elevated, so the price of buying
incremental insurance is high. But then importantly, the core corporate finance life cycle that we've been looking at over the last couple of years. Hopefully we can resume against SMP seven and fifteen percent earnings growth, and we can we can keep going.
But the only caveat i'd make here lease is there are.
Going to be some companies they're just not They're still not ready. They're in, they're locked in sponsor portfolios, and they can need even more time. Five years not enough, they need six seven years because of the higher rate of interest and to sort of carry the debt. But they are going to be other companies clearly that want to come, and we're beginning to see the lead sponsors
and lead companies. Not necessarily these megacaps, those are coming in any case, but the next year of companies we see in bakeofs sort of like M and A versus IPO type of bakeoff. We're seeing those, We're seeing those happening, and I think.
That augurs, well, what needs to happen for those deals to all come to market? Does it depend on rates coming in or volatility staying relatively needed or where it is? I mean, what are some of the sponsors and some of the CEO is talking about here?
I think the biggest risk continues to be that inflation gets imported around the world again through the energy complex, and eventually it works this way through the food and general living ecosystem and becomes that becomes challenging, that that queers the cost of capital and effectively then you start talking about the R word.
The good news we're not talking about the R word, and.
So that you know that that translates into I think, you know, sort of continue momentum and high quality companies and the wealth piece of the spectrum is continuing to deploy,
continuing to want to engage. So I think if there is some sort of and again I don't want to use the phrase it's a serious and complex issue, but sort of a better understanding, maybe a narrative the cone of uncertainty around what is happening in the Middle East that I think is going to be enough for folks to say, Okay, you know what, I can sort of manage through the imputed energy costs in the back end of twenty twenty six, and we're going to continue with
sort of the game plan. The game plan is to get bigger to defease the cost of a I remember the regulatory backdrop very favorable, and then the need to defease the.
Cost of AI real you put those two together.
I'm not saying bigger is better for everyone, but bigger is better might be hip again.
Well, and we heard about that from United speculating or some speculation that you might United might buy American Airlines. If that gets through, what's next, Augus Stanley buying Golden Sacks.
I mean, how big could it get?
Should there be some sort of regulatory green light potentially to even some of the big players.
Right well on mergers inside of our space, I'll make you gave me an opening to make a comment on that. I think one of the interesting phenomena of the last couple of years and one of the things I've learned in this job is that the quality of the management teams and the quality of the business models of our
closest competitors is very high quality. This is so important for us to have vibrant competitors now in a period when the economy is hopefully going to really have another leg where we are able to conduct some of the businesses that we've been wishing to conduct and have been curtailed from conducting during this tough regulatory patch that we
went through for the better part of twenty years. Now that we're able to compete in our traditional businesses, a lot of these firms have internal growth prospects, different models from each of the firms.
You know very well where we'll.
Be competing, but we don't actually need to go in organic. I mean, there may be ways where you want to bolt on, for example and incremental business, but in our case, we have the wealth and Investment Manager, we have the investment bank on a global basis, and the organic growth
potential for those businesses. The tailwinds are enormous, and I think with some of our competitors that I want to make the pitch for our competitors, I think they have similar types of dynamics and The reason that's so important is for investors, they want to know that there's embedded, durable growth inside of this group that still trades at a low teen's multiple.
One big question, frankly, the most story on the Limbert terminal today is about Fedshair independence, President Trump threatening to fire Fedhair. J.
Powell.
How much does that register in any of what you talk about with people or do a lot of people view this kind of a noise and the backdrop being really stable with respect to inflation expectations, even the institutional landscape.
Yeah, I think I think sort of the politics of the moment tend not to get too much into the focus of how you want to express a position, because the question becomes sort of the bigger landscape items. Do we have interest rate policy that feels like it's on a path? Well, I think the answer to that question is more so than it was eighteen months ago, but
for the war. So with the resolution of the war, do we feel again like we're on a path where there's sort of equilibrium between price stability and employment And if it's friendly enough or predictable enough that the CFO that she can model what the next five years look like, Well, then she's going more comfortable taking to her board the
idea of buying company XYZ. And likewise, if there's a reasonable view of what the economy looks like, because there isn't going to be an inflation shock, the acid manager can then go about investing in a particular sector and trying to generate alpha.
On the call, you called private credit in its adolescence, and you talked about how your exposure is relatively small. Where is the fact and where's the fiction when it comes to private credit?
Some of the concerns, Well, I think when I say adolescents, I mean a learning it's a learning period.
You know, it's grown like a weed.
And that, as you know, is a function of an ascia class that didn't exist ten fifteen years ago. Effectively the street was replaced on that. It's around a trillion seven high yields it about a trillion seven. Levered lending is it about a trillion five trillion seven?
So it's relevant.
But the ig stack is, you know, is the investment grade stack is ten to fifteen trillion.
It's all credit. It's all credit.
So all things be equal, if the economy is growing, credit does fine. It does fine when there's a recession, credit struggles, and then the question is then which of the borers we're really doing the work around what's in underlying portfolios?
How quickly was the capital put to work?
And I think what we're going to see is we're going to see dispersion of returns among great asset managers who really stuck to their knitting, thought about sector's diversification, thought about how long it takes to put those investments to work, and manage to do less well, and over time, I think the aults will find their place as a growing asset class for all kinds of institution investors.
Ted Pick, We're out of time, which is such a shame. I could talk to you for an hour. Ted Pitch, the CEO and chair of Morgan Stanley. I'm going to send it back to you as we look to an incredible earning season for Wall Street Morgan Stanley with a record trading at sales, looking to optimism ahead if there is some resolution in the Middle East. From New York, this is Bloomberg