Morgan Stanley CEO Gorman says deal activity will return once the Fed pauses

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Morgan Stanley's Q4 results show the club holding company is in full swing as the stock soars

James Gorman, Chairman and Chief Executive of Morgan Stanley, speaks during the annual meeting of the Institute of International Finance in Washington October 10, 2014.

Joshua Roberts | Reuters

MorganStanley CEO James Gorman said he is more confident about the markets than the rest of Wall Street and sees deals returning once the Federal Reserve halts rate hikes.

“I’m very confident that when the Fed pauses, deal and underwriting activity will pick up. I’d bet all year on that,” Gorman said on a conference call Tuesday. “We don’t think we’re headed for a dark period. Whatever negativity is out there in the world. That is not our view.”

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His comments came as his New York-based firm reported fourth-quarter results that beat Wall Street expectations, buoyed by the bank’s record wealth management earnings and growth in its trading business. Shares of the company rose 6% on Tuesday after the results.

Despite the overall stronger-than-expected results, Morgan Stanley’s investment banking business suffered a sharp slowdown amid a slump in IPOs and debt and stock issuance.

Investment banking revenue was $1.25 billion in the fourth quarter, down 49% year over year. The bank said the drop was due to the significant drop in global subscription volume for shares and fewer completed M&A deals.

Gorman said transaction activity will get a boost once financial conditions begin to ease. He said the Fed’s next move would likely be a smaller rate hike of 0.25 percentage point, followed by a pause. He added he wasn’t sure the central bank would cut interest rates this year.

“I’m a bit more confident about the medium-term prospects for the markets,” Gorman said. “We want to make sure we are positioned for growth. That’s going to change. M&A underwriting will come back, I’m sure. So we want to be in a good position to do that.”

The Fed has raised interest rates to a target range of 4.25% to 4.5%, the highest level in 15 years, marking the most aggressive policy action since the early 1980s.

“There is a lot of money waiting to be deployed. Our job is to encourage the flow of capital between those who have it and those who need it. So I’m pretty confident about the prospects,” Gorman said.

Correction: Morgan Stanley CEO James Gorman said, “Our job is to be the flow of capital between those who have it and those who need it.” An earlier version misquoted the citation.