UPDATE 1-Morgan Stanley CEO urges patience, measured reform

* Gorman urges more patience from public, regulators

* Rulemakers should take care not to hurt capital markets

* Wall St firms should limit proprietary risks- Gorman

By Joseph A. Giannone

NEW YORK, Nov 8 (BestGrowthStock) – As U.S. financial regulators
sit down to write new rules for the road, Morgan Stanley (MS.N: ) (Read more about the money market today. )
Chief Executive James Gorman has some advice: don’t get carried
away.

“The world should not assume you can just take out that
capital raising function and capital distribution function and
say everything will be all right, because it won’t,” James
Gorman, chief executive of Morgan Stanley (MS.N: ) (Read more about the money market today. ), said at the
Securities Industry and Financial Markets Association annual
meeting on Monday.

Congress in August passed the Dodd-Frank regulatory reform
law, with the goal of preventing another meltdown that nearly
collapsed global markets in 2008. The law touches on all
aspects of the industry, from which firms qualify as
“systemically important” to what kinds of trading remain
acceptable under the Volcker rule.

“We’ve had the Mother of all Shocks; now we’ve had the
Mother of all Regulatory Responses,” James Gorman, chief
executive of Morgan Stanley (MS.N: ) (Read more about the money market today. ), said at the Securities
Industry and Financial Markets Association annual meeting.

Now Wall Street, which kept a low profile during
congressional debates, is gearing up to make sure regulators do
not cut too deeply.

Wall Street does have the benefit of a clearer picture for
how the markets will be regulated, from the bank stress tests
and Basel III capital rules to the Dodd-Frank reforms.

Gorman, though, expressed concern about anti-Wall Street
“rhetoric” of the past year, which he said polarized lawmakers
and diminish confidence in the markets.

Some changes, he liked, including efforts to crack down on
proprietary trading. One of the big lessons of the financial
crisis, he said, was that Wall street must not to take on too
much leverage and to tie up their money in illiquid assets.

“I prefer the flow trading business,” said Gorman, which
means buying and selling securities on behalf of customers and
not betting with house money.

He added that the old practice of a firms taking as much as
40 percent interest in investment funds must not continue. A 5
percent interest is more appropriate.

“We are in a different place. We should have as little
capital at risk to support the fund and get it launched, but be
there to help our investors make money in their funds,” he
said.

Morgan Stanley can still profit, he said, by helping
clients make gains and from activities surrounding the fund.

The model for an investment bank ought to be simple: “to
originate, distribute and manage capital,” he said. For Morgan
Stanley, that means no credit cards, no commercial leasing,
traditional corporate banking, no retail branch network, no
property insurance or reinsurance, he said.

Gorman also appealed to the public and lawmakers angry
about Wall Street’s role in the financial crisis to give the
markets more time to recover and rebuild.

“The financial system nearly shut down. It’s only two years
on: you need a little bit of patience to rebuild, to accumulate
the capital you need,” he said. “We’re in a culture where
patience is not highly regarded, where action is always
preferred over thoughtfulness and there is a desire to have
immediate results on everything.”
(Reporting by Joseph A. Giannone; Editing by Jackie Frank)

UPDATE 1-Morgan Stanley CEO urges patience, measured reform