Morgan Stanley CEO calls for partnering with regulators and legislators

By Tomoeh Murakami Tse
Tuesday, April 13, 2010

NEW YORK -- Morgan Stanley chief executive James Gorman acknowledged in a letter to shareholders Monday that the financial sector benefited from extraordinary government support during the 2008 market crisis and urged the industry to work with Washington on reshaping banking regulation.

Gorman expressed support for a "strong systemic regulator" to prevent excessive risk-taking and called on the government to work with its counterparts overseas "to coordinate standards and enforcement and prevent 'regulatory arbitrage,' through which some market players seek competitive advantage by exploiting regulatory differences."

Although most regulators and banking officials agree that global coordination is necessary, Morgan Stanley has stressed its importance. In November, the New York bank's then-chief executive, John Mack, suggested that the Federal Reserve coordinate new pay guidelines with regulators abroad to avoid putting U.S. banks at a disadvantage.

Gorman's seven-page letter follows similar missives issued by other top Wall Street executives. Lloyd Blankfein of Goldman Sachs used his shareholders letter last week to defend the firm's actions during the financial crisis, and J.P. Morgan Chase's Jamie Dimon wrote to investors that government bailouts had spurred public anger and "policy recommendations that are meant to punish banks."

Morgan Stanley suffered big losses during the financial crisis and scrambled to stay alive. It has since curbed its risk exposure and is scheduled to report first-quarter results next week.

Gorman said he was not satisfied with the firm's performance last year but painted a brighter picture for investors in 2010.

The firm posted its first-ever annual loss on a diluted-share basis in 2009, which Gorman portrayed as a transition year. During that period, Morgan repaid $10 billion in federal bailout money, merged its brokerage business with Citigroup's Smith Barney unit and added to its risk management personnel.

"Now we need to execute," said Gorman, who took over as chief executive in January. "Our goal, as we move forward, is to rank in the top three in the key businesses in which we operate."

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