Morgan Stanley Chairman and CEO James Gorman said he is “perfectly happy to see our tech spend go up” – even as the bank’s revenues fell 22% – telling analysts that tech is “the fastest-growing part of this firm.”
“That's good because it's displacing things… which we shouldn't be doing manually. A lot of it is around new innovation, but we're also running a plant which is driving $60 billion in revenue. And there's just basic tech infrastructure that we keep modernising that is the backbone of that plant” he added on an earnings call.
Morgan Stanley’s investment banking unit revenues tumbled 55% year-on-year amid a challenging market but executives struck an upbeat note regardless, with wealth management and fixed income performing well.
Net interest income increased 49% from a year ago to $6.1 billion on higher interest rates.
“This is an environment where it behoves management to be prudent but balanced; a wholesale retreat from the markets is not called for” said CEO James Gorman, adding on the Q3 2022 call: “You're going to see a little bit of a washout in some of the fintech space. I mean this is reality. You've seen companies trading at valuations with which, God, we could only dream of over here in our modest little house. But they're just not reality.”
Morgan Stanley bought direct indexing provider Parametric in March 2021 as part of its Eaton Vance acquisition. (Direct Indexing lets investors own individual securities in a portfolio directly, rather than via mutual funds and exchange-traded funds (ETFs), which package underlying securities into a single vehicle.)
It also bought E*TRADE, an online trading platform for retail investors.
Morgan Stanley tech spend: Cloud, robo-advisors priorities
“The gem that is Parametric is just the gift that keeps giving” said James Gorman.
He added: “[E*TRADE is] a technology company, and we brought a lot of technology with that…”
He declined to answer more specific questions about technology spending, saying: “We don't publicly break out tech. Maybe we'll do more of that through next year. To give you some sense of what the focus is, obviously, moving to the cloud was a big deal... all of the innovation that's taking place in the financial advisor channel, the next best action [customer-centric marketing techniques], the virtual advisors… We have enormous technology requirements to support cyber and stop client fraud, and data control and management and so on."
With regard to his comments on the cloud, like many financial services firms, Morgan Stanley has anchored its approach to cloud quite firmly with one hyperscaler, in this instance Microsoft. The two signed a strategic partnership in June 2021 that will see them “developing and co-designing new application infrastructure meeting the key requirements for financial services and informing product innovations… bringing together common data models, cross-cloud connectors, workflows, APIs, and financial industry-specific components.”
Morgan Stanley CEO: We're back to fundamentals
Morgan Stanley's CEO added: "It shouldn't be surprising what's going on in the market.
"So I'm kind of surprised every time I see somebody on TV who seems surprised by it. We had zero interest rates for a decade. We have massive monetary and fiscal stimulus. We have the first land war in Europe in 70 years. The highest inflation in 40 years, and the Fed had to move. You're going to see some disruption. We're seeing it. Some of the more ridiculous stuff that's been in the market in the last few years, companies trading at 50x revenues, what's gone on with Bitcoin trading at $60,000... some of the GameStop and other companies where there's been these sort of aberration-type trading. I mean that's been washed out. And that's okay.
"We're back to fundamentals."