* Wall Street must rebuild trust with Main Street - Gorman
* Gorman supports clearinghouses for most derivatives
* Says probes creating "extremely fluid" environment
* Gorman says he is "unambiguously" in charge
(Updates to include new headline, share movement, additional
detail on proposals)
By Steve Eder
PURCHASE, N.Y., May 18 Morgan Stanley's (MS.N)
chief executive said on Tuesday that he supports "strong and
effective regulatory reform" and that Wall Street must "rebuild
trust" with Main Street.
James Gorman, who became CEO on Jan. 1, met with Morgan
Stanley shareholders less than a week after sources said
federal prosecutors and the New York Attorney General were
investigating the bank's and other banks' roles in transactions
that occurred in the run-up to the subprime mortgage crisis.
Wall Street has been rocked over the past month since the
U.S. Securities and Exchange Commission sued Goldman Sachs
Group Inc (GS.N), accusing the firm of civil fraud in
connection with its marketing of a subprime mortgage product.
"As an industry, I think it's important that we acknowledge
the mistakes that were made in recent years," Gorman said at
Morgan Stanley's annual shareholder meeting. "We need to
understand why people are so angry at Wall Street."
Morgan Stanley finds itself in an "extremely fluid"
environment in light of ongoing investigations and regulatory
proposals from Washington, Gorman said.
The probes have added fuel to legislative efforts to bring
reform to Wall Street. Those efforts could affect how firms
like Morgan Stanley do business in the future.
Gorman argued that "no bank is too big to fail," saying
that lawmakers should create an authority that would ensure the
"orderly unwinding of failed financial institutions."
At the same time, he argued that limiting financial
institutions' sizes could harm U.S. bank's competitiveness.
He also expressed support for shifting most, but not all,
derivatives onto clearinghouses, boosting consumer protections
and setting strong global capital standards.
"Morgan Stanley is 100 percent committed to strong and
effective regulatory reform as soon as is practicable," he
Morgan Stanley got $10 billion from the U.S. Treasury
during the financial crisis and lobbied for other moves such as
Morgan Stanley shares were trading at $26.55, down 2.1
percent, in afternoon New York Stock Exchange trading.
U.S. prosecutors are conducting a criminal investigation of
six major Wall Street banks, including Morgan Stanley, to
determine whether they misled investors, a source said last
week. The source said the investigation included mortgage bond
deals, was at an early stage and might not lead to criminal
Last week at an appearance in Asia, Gorman said he had no
knowledge of any federal probe. He told reporters again on
Tuesday that Morgan Stanley had not been notified of an
investigation and that the firm had not received a Wells Notice
from the U.S. Securities and Exchange Commission indicating the
likelihood of civil charges.
Morgan Stanley has not initiated an internal review
stemming from the investigation as the company was not aware of
it, Gorman said.
Separately, the New York Attorney General last week opened
an investigation into whether eight banks, including Morgan
Stanley, misled ratings agencies with regard to
mortgage-derivative deals, another source said.
WHO'S IN CHARGE?
Former Morgan Stanley CEO John Mack, the company's
chairman, led Tuesday's meeting. That prompted a shareholder
representing a labor union to ask who was running the company.
Gorman said he is "unambiguously" in charge. Mack said he
has promised to resign should he get in the way of his
One shareholder asked Mack whether his portrayal in the
book "Too Big To Fail," New York Times reporter Andrew Ross
Sorkin's chronicle of the financial crisis, was accurate -- and
whether bank executives really used such foul language during
tense moments of the crisis.
"The language was probably stronger than what was in the
book," Mack joked.
Morgan Stanley shareholders on Tuesday voted on nine items,
including multiple proposals related to pay. Shareholders
backed the company's director nominees and a non-binding
advisory vote to approve the firm's executive compensation.
Five shareholder-initiated proposals, including a proposal
aimed at addressing disparities in pay and another that
included a policy for recouping management bonuses, were
Also defeated was a proposal to split the roles of chairman
and CEO. Morgan Stanley currently has a separate chairman and
(Reporting by Steve Eder. Editing by Gerald E. McCormick and