Wealth management

Morgan Stanley’s global chief insists world economy more stable than many imagine

James Gorman shares his views on the opening up in China, Trump and Macron, and wonders why so much worry has surrounded bitcoin: “It’s just another form of stored value, and not a very big one.”

PUBLISHED : Sunday, 19 November, 2017, 5:40pm
UPDATED : Sunday, 19 November, 2017, 11:14pm

The world economy is rather more stable than many imagine, according to James Gorman, chief executive and chairman of Morgan Stanley.

In fact, speaking in an interview with South China Morning Post, Gorman suggested there were a number of topics in the world today about which he felt rather more fuss was being made than they deserve.

This stability even rolls into his bank’s own business, as while the lack of global volatility has hurt fixed income trading revenues, Morgan Stanley’s revenues in the US have been boosted by a strong performance by Morgan Stanley’s wealth management division, traditionally one of the more conservative parts of the banking industry.

There is relatively little global turmoil. Geopolitically the world is as stable as any decade it has been in any decade in the last 10
James Gorman, chief executive and chairman of Morgan Stanley

Gorman now wishes to perform a similar trick in Asia Pacific and is looking to build out the US investment banking giant’s wealth management business across Asia, joining what’s becoming an increasingly crowded field.

“There is relatively little global turmoil. Geopolitically the world is as stable as any decade it has been in any decade in the last 10,” Gorman said.

“Change in the geopolitical space is relatively mild, the political space is full of angst, but nothing around the world is actually changing beyond that feeling of angst, because the economies are performing relatively well underneath it all.”

Gorman noted that while US voters elected Donald Trump, the UK voted to leave the EU and there has been a wave of younger politicians come to power around the world, from Macron in France to Arden in the New Zealand , “no fundamental change has occurred apart from Brexit”.

“Trump has not brought through a wave of new legislation, Trudeau has not reshaped Canada , the only one you could argue has had an effect is Abe in Japan .”

There are other topics too, which Gorman feels are discussed more than they ought to be.

“Why are [journalists] spending so much time worrying about [bitcoin]?” he asked, for instance.

“It’s just another form of stored value, and not a very big one. I’d be much more worried about what interest rates are going to do, for example, than bitcoin.”

Another topic on which he urges restraint was around the opening up of the Chinese economy.

“When it comes to the internationalisation of the yuan, things have generally taken longer than most people would have guessed, and I don’t see that changing,” he said.

“People get excited about things that are new and different ... but large economies don’t change that quickly.

“The opening of the Chinese economy is a massive project, and you do it in small steps, you change you absorb, you see the unintended consequences, you change again.”

The latest step in the opening up was the announcement of a series of measures earlier this month that would allow foreign players to own greater stakes in Chinese banks and securities brokerages, an announcement that Gorman welcomed, and said that Morgan Stanley would seek to own 51 per cent of its joint venture, Morgan Stanley Huaxin Securities.

However, he also said that he hoped Morgan Stanley will increase its wealth management presence in Asia, traditionally an area where the bank has been less active.

A strong performance in wealth management was one of the areas that helped Morgan Stanley to beat analysts expectations for its third quarter, analysts said.

“We have never aspired to have a large business outside the United States in wealth management, and it would be a mistake to keep that attitude,” Gorman said.

The opening of the Chinese economy is a massive project, and you do it in small steps, you change you absorb, you see the unintended consequences, you change again
James Gorman, chief executive and chairman of Morgan Stanley

We would love to expand our wealth business, whether organically or inorganically, as it is one the businesses we’re strong at, but small in this part of the world.”

The expansion comes at a time of fierce competition.

Earlier this year, Deutsche Bank announced a hiring spree of wealth managers in the region, smaller central European specialist private banks are also looking to grow in Asia, and the top of the Asian wealth management league tables has long been dominated by UBS, holding the top spot from Citi, Credit Suisse and HSBC.

“It is true that many global banks are looking to grow their Asia wealth management business. This is both demand and supply driven,” said Park Joong Ho , Partner, Oliver Wyman.

“In terms of demand, Asia is one of the fastest regions of wealth creation in the world, hence there are a lot of new “wealthy” customers emerging in the region. Supply, in contrast, hasn’t caught up with demand yet. For example, in 2015, there were 7 million HNWI (high net worth individuals) in Asia, but there were only 10,000 private bankers in the region.”

Wealth management will only ever be part of Morgan Stanley’s business in the region, where they have long focussed on asset management, sales and trading in fixed income and equities, and investment banking services.

Here, things have been harder for investment banks with fewer IPOs coming to market, at least until the past month, when low interest rates started affecting banks’ trading operations.

“The Asian investment banking markets in the past 12 to 24 months haven’t been their best,” said Gorman.

“There are a lot of reasons why it hasn’t been the glory years, but we play the long game. I’m happy with the markets we have a presence in, and we are trying to get bigger in China.”

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