Gorman Says Fixed-Income Trading to Rebound From 2013 Slump

Jan 22, 2014 11:36 am ET

(Updates with Gorman’s goal in the fifth paragraph. Click DAVOS <GO> for more on the World Economic Forum.)

Jan. 22 (Bloomberg) -- Morgan Stanley will do better in bond and commodities trading this year after posting the biggest drop in revenue among U.S. rivals in 2013, Chief Executive Officer James Gorman said.

“For all the heat that’s being put on fixed-income and commodities, they’re going to have a better year in 2014,” Gorman said today in a Bloomberg Television interview with Erik Schatzker and Stephanie Ruhle at the World Economic Forum in Davos, Switzerland. “Last year was tough, but that’s not the end of the story.”

Morgan Stanley generated $4.2 billion from trading bonds, currencies and commodities in 2013, a 25 percent drop from a year earlier and less than half any of the New York bank’s biggest U.S. competitors. Gorman, 55, has said he’s concerned with the returns of the business, not the size.

“We’re not ever going to be one of the mega rates and foreign-exchange businesses like the big global commercial banks are,” Gorman said. “That doesn’t mean we can’t have a strong fixed-income and commodities business.”

Gorman set out a goal last year of boosting the fixed- income division’s return on equity, a measure of profitability, to 10 percent. The company said while credit, securitized products and currency units reached that goal, low returns in commodities and interest-rates-trading units kept the division from achieving that in 2013.

Revenue Target

Gorman said in 2011 that Morgan Stanley was seeking to boost its share of fixed-income-trading revenue among the largest global investment banks to 8 percent from the 6 percent it achieved in 2010. While the firm almost reached that level in 2011, its revenue share fell in each of the last two years.

The bank said last year it was no longer focused on a specific revenue goal and expense cuts meant it could earn acceptable returns even with lower revenue. Gorman also offered advice today to those who were overly concerned about the size of the firm’s business.

“They better get a life, if they’re obsessing about our fixed income,” Gorman said. “There’s a lot of things to worry about in this world.”

--Editors: Steve Dickson, Dan Kraut