Morgan Stanley CEO frets over capital rules
PURCHASE, New York (Reuters) - Morgan Stanley Chief Executive James Gorman is concerned that regulators may force large banks to hold too much capital, a move that banks worry would crimp profits.
"We urge policymakers and regulators to take into account
the cumulative changes" to capital requirements that have been put in place since the financial crisis erupted, Gorman said at Morgan Stanley's annual meeting on Wednesday.
The Federal Reserve is crafting terms for an additional capital buffer for systemically important financial institutions, known on Wall Street as the "SIFI buffer."
That capital buffer is required by the Dodd-Frank financial reform law. It comes in addition to stricter capital standards to be adopted internationally.
Gorman said more buffers should take into account the collective impact of all the capital rules on the financial industry. He also warned that domestic regulators must consider rules abroad as well.
Gorman appeared less worried about some financial rules and regulatory probes than some of his competitors.
Washington is reshaping Wall Street after the financial crisis through steps such as putting limits on how much capital banks can risk through trading for their own accounts.
Many banks, including Goldman Sachs Group Inc, fear that those restrictions, known as the Volcker rule, could limit their trading activity with customers.
Morgan Stanley believes that regulators are working hard to ensure that legitimate trading with customers is not affected. "They don't want to shut down markets," Gorman said, speaking after the meeting.
Morgan Stanley has worked to shut down or spin off trading operations that bet the bank's own money, including spinning off hedge fund FrontPoint Partners and trading unit Process Drive Trading.
Gorman said mortgage-related probes involving commercial and investment banks are "very firm-specific" and have not been a significant issue for Morgan Stanley.
Gorman is working on four key areas for the bank: building its fixed income, currency and commodities trading business; integrating the Smith Barney retail brokerage business; increasing its market share in equities; and maintaining strength in its underwriting and merger advisory businesses.
Though the bank made progress in 2010, "we are by no means pleased with our performance," he said. Gorman later added that "investors would like to see progress across all of these on a more or less consistent basis."
Regulatory uncertainty and the bank's inconsistent track record have put pressure on the company's stock price, Gorman said.
Last quarter, for instance, Morgan Stanley booked unexpected losses as a result of a partnership with Japanese lender Mitsubishi UFJ Financial Group.
In announcing first-quarter results, Morgan Stanley also said it would convert the group's large preferred stock investment into common equity.
A preliminary vote count showed shareholders approved all 13 directors, as well as executive compensation and a proposal to hold an annual "say on pay" vote. They also approved Deloitte & Touche as Morgan Stanley's accounting firm.
(Reporting by Lauren Tara LaCapra. Editing by John Wallace and Robert MacMillan)