Morgan Stanley Chief Executive Philip Purcell this week spoke to brokers and selected clients at the firm’s New York headquarters, delivering an upbeat message about the markets and about the firm, according to brokers who heard the 11-minute speech.
But Purcell did allow that “confidence in research has been shaken,” and he confirmed that the New York Attorney General Eliot Spitzer is investigating conflicts of interest involving the firm’s equity research. But he added, Morgan Stanley has managed the conflicts well, according to Morgan brokers.
A broker who heard the speech said that Purcell used the words “confidence” or “confident” about 19 times in the short speech, which was later broadcast to brokers firm-wide.
Purcell said that the decline in stocks has created buying opportunities, stating, “I personally have much more confidence in the equity markets today” than before the market tanked in 2000, Morgan brokers said. “We are in much better shape today than we were three years ago, when everyone thought we were in good shape,” a broker reported Purcell as saying.
Purcell tried to put a positive spin on the recent conflict-of-interest scandals, saying the increased scrutiny caused by fraud at Enron and WorldCom has improved accounting and corporate governance, and that it will ultimately improve Morgan’s clients’ confidence in the capital markets and Wall Street in general, according to Morgan brokers.
“I agree with that,” says a Morgan Stanley rep. “The laws being passed are bringing out the bad. Going forward, everything will be healthier in part because of that.”
“But right now, my clients aren’t expressing any confidence whatsoever,” the rep says. “Yet, when you see executives being carted off in handcuffs, at the least the industry is showing that you can’t get away with anything anymore, and that will only bode well for us in the future. Times will change. But that time has not come yet.” Another client took issue with Purcell’s sanguine view of the stock market, saying “none of my clients want any part of the equity market.”
Another broker echoed that sentiment. “All my clients want is fixed income,” says a Morgan Stanley rep. “At least the ones who aren’t blowing out all together.”
Purcell was also quoted as saying that the economic slowdown and market crash were inevitable. “Our economy has done what a free-market economy has always done. When we allocate way too much capital to industries like we did—to technology, to telecommunications—we end up having to correct it.”
Another broker said that was easy for Purcell to say. “I wish he was sitting here in my shoes for a day, listening to my clients whine and moan. Things are very, very tough right now. I spend more time counseling my clients than making money.”