RJ and Makay

Morgan Stanley has every intention of moving forward with plans to eventually purchase the rest of its joint venture with Smith Barney, according to Morgan Stanley Chief Executive James Gorman.  During the Securities Industry and Financial Markets Association annual meeting in New York, Gorman reaffirmed that the deal with Citigroup, Inc. was structured to have an open-ended option to allow Morgan Stanley flexibility to “be more aggressive or less aggressive” in buying the rest of the stake in Smith Barney.  Referring to his firm’s May 2012 option to buy the next 14% of Morgan Stanley Smith Barney, Gorman added that the plans are to “move forward on the first trigger.”

Last week, the Wall Street Journal reported that Morgan Stanley could consider postponing the timetable for its purchase of part of the Smith Barney venture so that it could meet tougher global capital requirements for banks in 2013. According to Mr. Gorman, the Basel III Capital Accord was “extraordinary” in its significance and Morgan Stanley had moved closer towards a safer, less leveraged approach to help it meet the new rules.  “Leverage is a killer,” he said, adding that a firm “only needs to be wrong twice” when it is leveraged 30-times assets to be “out of business.”