James Gorman arrives promptly at noon at a sparsely populated Greek restaurant in midtown Manhattan. We are a couple of blocks from Morgan Stanley’s headquarters, which are incongruously located near Times Square. While Gorman and his colleagues fought to save the investment bank from collapsing in recent years, tourists would throng obliviously outside, having pictures taken with Elmo and Mickey Mouse.
Since then, Gorman, a poker player since the age of 15, has made two big bets: that he could slash bonuses without sparking an exodus of bankers, and that the company should get much bigger in managing Americans’ wealth and much smaller in trading complex bonds.
The 56-year-old Morgan Stanley boss, who is not as emotionally volatile as other Wall Street titans, opens with trademark dry affability. “How are you? Putting your weapons away?” he asks, as I push aside mobile phones and get up to shake his hand.
“It’s light,” says Gorman of Estiatorio Milos’s fare. “I’m married to a health-conscious American. I try to eat well but definitely, as an Australian, you have some of the red meat, lamb, steak, barbecues as part of your culture.”
Born and raised in Melbourne, Gorman abandoned a legal career to study for an MBA in the US in 1985, and stayed, joining McKinsey after business school. Then, with his third career switch, he exchanged consulting for banking at Merrill Lynch, followed in 2006 by Morgan Stanley, where he became chief executive four years later.
Along the way he married and he and his wife, Penny, had two children together. In 2004, he passed the US citizenship test. “I figured if you live in a country long enough, you want to be a part of the political process and you sort of owe it to your hosts. They’ve accepted you. Why wouldn’t you accept them?”
Gorman orders a tomato juice and I copy him. Every table has a small plant on it and the waiter does some light gardening to pluck sprigs of oregano, which he scatters in some olive oil for dunking the complimentary bread in.
I tack back to the issue of his US citizenship. The immediate trigger was, it turns out, the 2004 presidential election. Which way did he vote? “I couldn’t tell you that.”
If he went out of his way to vote in 2004, I say, it must have been for the Democrats. “Hmm,” is all he offers by way of a reply. I tell him that Americans are usually upfront about their political allegiance. Before he can respond, a waiter arrives at our table. (Later I will consult the Federal Election Commission’s website to find Gorman has donated almost exclusively to Democrats, including Hillary Clinton in her failed 2008 presidential bid.)
“You want to share a couple of appetisers?” Gorman says. I choose the octopus and the salmon for my main course; he picks the Mediterranean meze plate followed by lamb chops — “in honour of my meat-eating origins,” he says.
The voluntary references to Australia are a surprise, as I remembered Gorman being irked in the past about being labelled with his country of birth. “Sometimes the focus was on the fact that I was Australian, because there weren’t many foreigners running banks in this country and it was a time when I was really wanting to focus on the business and not my personality,” he says. “I am very proud of my Australian roots.”
He flies home periodically to see his family, including nine siblings, and is given a customary Antipodean greeting at big barbecues. “As I come through the back door, invariably someone will call out, ‘Where did you park your plane? On the front lawn?’ I’d love at some point in my life to have a real chunk of time to spend down there but I think my base will always be here.”
I clarify that “here” means New York City, not just the US. More financial executives are decamping to Silicon Valley, including Gorman’s lieutenant, Ruth Porat, who has just left to become chief financial officer of Google. Campus recruiting has got a lot tougher for banks because technology is now seen as the sexy industry.
“We’re in a great industry. Banking’s a sexy industry! Creative, it’s dynamic, it’s global, it’s fast-moving, you bring a lot of talented people together!”
I suggest it has been less of all of these things in the past few years. In fact, “creative” is sullied by the innovative derivatives that fuelled the mortgage bubble in the run-up to the 2008 crisis. Today, it’s slower, more regulated and more domestic.
“I think it’s still a fabulous industry,” says Gorman. “We had something like 92,000 résumés from kids this year. If you’re just interested in the prestige of banking, that’s not what’s going to sustain you. You have to be interested in what we do: managing and originating capital, helping issuers and investors come together is great, bringing these companies to life.”
Again, I question how many of his thousands of applicants are in love with finance rather than their own future finances. “Oh, I think you have a jaded view. I talk to these kids all the time. Some come from very privileged backgrounds; many do not. Our housekeeper, who’s Tibetan — wonderful woman, worked for us for a number of years — she asked my wife if I would be willing to look at the résumé of one of her nephews. It turns out he was the first kid from this family to go to college . . . his test scores were at least as good as the incoming class that we hired, and this kid had come from nothing. Child of immigrants, first-generation college and he’s got a full-time job at Morgan Stanley and doing a terrific job . . . We introduced him to the risk-management organisation. They wanted to hire him after they put him through their interviews.”
Fair enough, I say. But there is worry in the US about the elusiveness of the American dream, the inequality of incomes, with the top 1 per cent — usually represented by a Wall Street baron such as Gorman — doing rather well, while others — perhaps not lucky enough to have aunts in service to the bankers — suffer stagnant incomes.
“I think the minimum wage in this country and the lack of real growth over decades is a problem.” Still, he rejects the idea that the possibilities have narrowed. “That is what made America great — that everyone had the opportunity to be a winner. And I think it’s still there. I’m certainly a beneficiary of it.”
Gorman scans the restaurant — there are white tablecloths, high ceilings with industrial apparatus exposed and some illustrious diners, including Eliot Spitzer, who is sitting at the next table. (The former governor of New York used to be the scourge of Wall Street for his attention-grabbing crusades against the industry’s excesses but was later undone for his own, in a 2008 prostitution scandal. )
Gorman points out some of his acquaintances, including two Australian bankers. The nearest, I note, sports hair longer than the banker regulation cut, just like Gorman does.
“Do you think I have longish hair? It’s the foreign part of me.”
It’s almost mullet territory, I say.
Mull-ET, I repeat, more slowly this time. Though over his collar, Gorman’s hair is not properly a mullet but still, it is the longest of any Wall Street chief executive.
“Mullet? What’s mullet? I never heard of it.”
I move on, mentioning that we have an interesting neighbour, gesturing to Spitzer. “Yes, but he’s not Australian.”
You wouldn’t want to claim him? “No.”
We share dollops of hummus and taramasalata and tasty chargrilled octopus and turn to Morgan Stanley, which today has $830bn in assets and 55,000 employees in 43 countries. It was once seen as the most blue-blooded of all investment banks but its more recent history has been chequered. In 1997 it merged with Dean Witter, the retail brokerage, which catered to ordinary individuals and had the Discover credit card network. Battles for leadership and the soul of the enterprise followed.
Gorman was at Merrill Lynch and had just been shuffled to a new job. “I was demoted. At least I thought I was. I had been approached by Morgan Stanley twice before. They called again and this time I took the call and took the job [as head of wealth management].”
He arrived in time to enjoy some of the global boom in investment banking. Then came the financial crisis: Bear Stearns collapsed, then Lehman Brothers went bankrupt. There were only two independent investment banks left, Morgan Stanley and Goldman Sachs. Morgan Stanley was seen as next in line. Even now, some rivals think Morgan Stanley was technically insolvent for a time in 2008.
“No, they speak of which they do not know,” says Gorman. “I didn’t see them talking to the treasurer or the chief financial officer. Maybe they were in those rooms and they just weren’t very visible. When the stock went to $6 [in autumn 2008] and the cash was running low, it got a little hairy but, no, we were solvent through it.”
In the end it was a double injection that saved the firm: first, a big investment from the Japanese bank Mitsubishi UFJ, which now owns 22 per cent of Morgan Stanley; and the US government’s emergency investments in all the largest banks.
“I saw them like planes lining up to land at Newark airport,” says Gorman, referring to financial institutions. “The question was: who was going to land safely? Who was going to have a crash-landing but walk away from it? And who was really going to crash? Everybody in the industry was in that queue.”
Gorman stepped up to the top job in 2010. In a turbulent period in 2012, doubts again surfaced about whether Morgan Stanley was going down, this time because of the eurozone crisis. But, slowly, profits have picked up. In contrast to Goldman Sachs, long known for its opaque trading practices, Gorman has taken Morgan Stanley in a distinct direction: more wealth management, building a 16,000-strong army of financial advisers; and less fixed-income trading, the business that powered investment banks in the good times but has proven the most challenged by new regulations.
At the same time, he has taken an axe to pay and, in 2012, forced senior staff to defer 100 per cent of their bonuses in the quest for better shareholder returns. “If you underperform for your owners, eventually they pick up their bat and ball and go home,” he says. “If you’re not profitable, it was unacceptable to have the option to say: when we make money, we’ll pay ourselves well, and when we don’t make money, we’ll pay ourselves well to keep people. We had lost the right to make that statement.”
Gorman says his outsider status has allowed him to take more radical action on pay. However, if he does not see himself as occupying the traditionally gilded seat of the investment banker, he is not exactly an “Occupy Wall Street” activist either (his own pay went up 25 per cent last year to $22.5m) but rather the cool management consultant.
“It wasn’t like a holy war,” he says. “This was a purely financially rational decision — get it ready for prime time and then bring it back to normal operating procedure.” He has now relaxed the strictures. “We’re no longer at a time of crisis. It made no sense to present ourselves to our employees and the market as being in crisis.”
Gorman gives his verdict on the food — “It doesn’t feel like an over-managed meal” — and asks if I would like some of his chips. I take one. “Take a bunch. I’m going to eat this many more,” he says, segregating them. “These are yours. Or they are going back to the kitchen.”
The downside of being an outsider, as Gorman acknowledges, is that it breeds mistrust among the insiders. “I’m sure, over the years, a lot of people were deeply sceptical, not just of myself but of any consultants going into business,” he says. “If you deliver, eventually most of them shut up.”
Not that Gorman is stingy with the credit for Morgan Stanley’s current happier state. He praises the “incredibly creative and gutsy” actions in the crisis of Ben Bernanke, as Federal Reserve chairman; Tim Geithner, as president of the Federal Reserve Bank of New York; and Hank Paulson, then Treasury secretary and former chief executive of Goldman.
“I don’t think they’ve got enough credit for it,” he says. “How lucky could you be that you have a guy who spent his life studying the Great Depression [Bernanke], combined with a guy who’d spent almost his whole life working on every global financial crisis for the previous 20 years and was a genuine markets guy [Geithner], combined with somebody who had been chief executive and chairman of one of the top investment banks in the world [Paulson], in the leadership positions they were in during the biggest financial crisis of the century. It’s like having the all-star line-up for the Yankees in the one game you actually needed them, and we had them.”
As we skip dessert and move on to coffee, Gorman also credits his predecessor John Mack and his current colleagues. “We can speak in shorthand . . . that means you can make decisions more rapidly and the cohesiveness inside the room just means we’re in it together.
“You remember the film Gladiator? At the end, when Russell Crowe and his band of slaves who are fighting in the Colosseum get pushed out in the middle of the thing, and all of a sudden there’s a huge noise and the big gates are about to open and they know that something horrible is going to come through those gates, most likely to kill them in the most unpleasant way, and he turns to them and he says, ‘Whatever it is that comes through those gates, we stand together’. I love that . . . ”
He pauses, I shoot him a sceptical look and we both laugh.
“It’s not directly analogous to what we do! I’m not suggesting that but I think there’s something to be said for a team.”
Tom Braithwaite is the FT’s US banking editor
Illustration by James Ferguson
Letters in response to this article:
Price tags on water / From Dr Izhar Khan
What did the FT pay for lunch with James Gorman? / From Omar Ben Yedder