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Welcome to Opening Bid. We are still at the World Economic Forum here in Davos, Switzerland, and there's no shortage of big bank CEOs working the promenade, thinking about how they're reinventing their business, maybe closing some deals, not sure what they're up to, but let's, uh, let's see what they are up to. Morgan Stanley CEO, Ted Pick, good to see you.

Great to see you, Brian. Thanks so much for having me.

So, the last time I talked to you, I think it was 2020, right in the middle of the pandemic. You weren't the CEO.

I, I knew you were getting this job, Ted. You were my guy. I knew it.

You, you couldn't give me a ring and told me? That would have been good to know. I'm going to give you I'm going to talk more often with you.

Well, but I think it speaks to something that you are known for, your relationship guy. You know, how is that helped Morgan Stanley through the years? How important are relationships in this age of AI? All I'm hearing about is AI replacing humans, but relationships still matter, right?

Well, uh, you know, they say you're not supposed to say that's a great question because it, you know, you're buying time to answer a question, but that is a great question. Um, on, on culture, we talk about rigor, humility, and partnership. And if you don't have a timeline of a relationship, uh, no one's going to be all that impressed. So we're just talking about some of the folks you, you've interviewed. If you haven't known them for years and gone through thick and thin, you deliver product, there's rigor, you, you, you're on time, you worry about the little detail, you may be off, you get a question wrong, you give it the advice is not quite right, but you're sort of, you're correct and you're focused on that client over time. And then for us, the humility, part of the reason the partnership works and the relationship with clients works is we are unafraid to talk about our histories. You know, we were, we were hours away from a perdition. But then we, uh, thanks to Mr. Gorman, 15 years, and that's a long time, transformed. And when you go around the room, the tenure, the partnership, uh, uh, Wesley and others who are, who were here, 20, 25, 30 years, and, you know, we're, we're, we're gut it because we're here for clients and the clients know what we've been through and what we, what we can be. Uh, but we know a lot of it is just bringing it day by day. And the last piece, and this is the Morgan Stanley today, is with Dan Simkowitz and Andy Saperstein, we, we've got partnership. So if, if you talk to me, you may be talking me about potential merger advice, you may be talking me about your wealth account, we may be talking about some asset allocation, we're probably not talking about a lot of other things because we raise, manage, and allocate capital. So we know what we do, we're consistent on that, but it's relationship driven. Yes, the AI is super important, brings a ton of efficiency to the cost structure and disruptive to like mainframe and that type of thing. Uh, the effectiveness of, uh, you don't need to write your notes because someone will spit it out in, you know, 20, 20 hours of, uh, certain note debrief is taken down by 80%, we still need the human overlay. That's never going to change.

What's your You're known as a deal maker. What's your secret sauce to closing that deal? How do you do it?

Listen. Listen. Listen. Some, some, some interactions are meant to turn into a transaction, some interactions are meant to just build rapport. And, uh, clients have been around the block, many of them have done what we do for a living. And if they feel like you're shilling, you know, they got the antenna up. Uh, and I, I, I think the, the, the, the, the long road is the right road. Now, obviously, we're commercial enterprise and we want to monetize the client base, but if you think about it, and you've talked a lot about this, like, what is the, the aspiration? The aspiration is for us to have a 17, 18 earnings multiple. Say, wait a second, I thought you guys were valued on price to book. Say, okay, but, uh, and you, and you're cyclical. Like how are you going to do that through the cycle? The answer is there's got to be some kind of level of an annuityized fee structure. Well, how do you have durability because your clients are unpredictable? When's the M&A cycle going to kick in? Well, some of it is you have kind of the stable of clients that you know will transact and there's regularity holistically amongst the client base, but not necessarily, we need to print these transactions for this quarter, this half. So some folks have said, uh, you know, when's the M&A cycle going to kick in? You got that pipeline and when's it going to come? The deregulation for this time. So my view is it's going to come. I just, if I knew which month, but it's going to come.

I heard that too from, uh, Nasdaq CEO, Adena Friedman. She, she's suggested second half things unlock, but what I'm trying to figure out, I'm with her on that. How does it unlock? What's the, the speed? Do we get a rush of deal or rush of M&A? What does it look like from your, from your perch?

Uh, it's an interesting question because, um, it, these things never go as you predict quite. Um, I do think, uh, let's take the sort of the metaphor of Davos itself. Some of the articulation of US exceptionalism and the positive, uh, juju around kind of a sort of a more brownie, uh, kind of American, uh, domestic and foreign policy and business interaction is actually, I think, jump started some of the European conversations around public, private, big ideas. And I think that analog can be taken to sort of company dynamics. Um, uh, if there's a big print in a sector that, uh, is about to be deregulated or a disruptor, because as you know, the corporate sector is healthy, the balance sheets are, are pretty heavy with cash, uh, and capital structures are pretty sound, others are going to follow. And I think part of what's changed versus previous, as you've talked about, Brian, previous M&A cycles is I think there's something like 1900 private companies with add value of a billion or more, and the average duration of portfolios are five, six years. I mean, you have to feed the beast. And so these are great companies, but at some point, they should be public companies. I think there'll be, I think Adena is right, that some of those will go to public track. There's a private public solution, but they're going to want to come. So if you're a strategic guy and you've been looking at that, and now you have a better view on interest rates, kind of in the mid fours, so the zero zeros passed and a better sense that interest rates are in a range, and you see all this global interaction, say, oh, but there's global uncertainty, I think it's actually called to action. Things are going to happen. So I need to act. I'm a sponsor, I'm raising capital. I want to, I want to get going on my new ideas. I need to harvest some of the portfolio. I'm a strategic. I need to either get bigger, smaller, purified supply chains, I need to act. So if you ask me the when, I don't know, if it's this quarter, next quarter, and the following quarter, but on the if we're going to go from below trend line to trend line, even higher on a 6,000 S&P, yes, it's coming.

Is the big deal out there to be had under the Trump administration? I bring this up because the past, now, let's go two years, that big deal hasn't happened. I think Tapestry, Michael, Tapestry want Michael Kors, that, that deal didn't happen, got shot down. And there's been, there were many others like it. Does this administration enact or unlock that big headline making deal like two companies joining forces?

Well, I think, I think the, the, the regulatory regime is going to be balanced. I, I, I don't think there's going to be some kind of unfettered unleashing of anti-competitive dynamics of a company A and company B suddenly owning a market space, but I think some of the, uh, kind of unpredictability and some of the sort of element of administrative state is going to come back into line. And I think net net, of course, the deregulatory wave is going to be beneficial to energy companies, financial companies, retailers. So I think there will be some M&A activity. I mean, part of the reason it's going to feel big to both of us is because the last time we saw a merger wave, the S&P was a couple thousand points lower. So the numbers are going to feel bigger because the notionals are bigger.

You're speaking right now, Ted, to, to really millions of retail investors that are sitting on a lot of gains in their portfolio. What do you tell them, or what would you tell them about stock valuations at these levels? Do they feel expensive to you?

Well, it's an interesting question because, uh, it's hard not to argue that, uh, 6,000 S&P on a straight, uh, you know, sort of, um, ERP to bonds, uh, I equity risk premium are pretty expensive historically. You know this stuff better than I do even. 250.

No, I don't. You know, you do. You do. And our guys, Mike Wilson, and Lisa Shaw, and others, they, they spend their sort of

Byron Wien, he's superb, as is Lisa, and the old Byron Wien model of sort of comparing stocks to bonds on a, on an index level, it looks pretty full. I guess what I would say is, but you want to look below the index because there's so much querying of the top seven tech names. They have a bunch of market cap. By the way, these companies are truly great companies generating a ton of cash flow. So that's not to say that they are themselves necessarily expensive. Looking at the rest of the S&P, less focused on the aggregate index, what sectors am I interested in where I've been underweight for the last 5 to 10 years? They've been out of favor. How do I feel about energy transition? How do I feel about financial services deregulation? How do I feel about certain retailers that have some interesting ways of looking at the supply chain, the customer base? And those companies, the best of those companies don't necessarily suggest reasonable, unreasonable valuations. So I do think we're going to go from sort of index mentality. The index is always what we first look at. And I wouldn't be surprised the index is at this level, or even lower at some point. I wouldn't be surprised by the way if it was somewhat higher because earnings look pretty good in aggregate. And again, that, that inures to the disproportionate benefit of the big tech names, but I think looking beneath the covers over the next 12 to 18 months of specific sectors, I think that, that could be interesting, and keeping an eye on when it feels like it's sort of been a little bit of a blow off and not rushing in, I think it's always important. Long-term mentality.

One of the interesting things with your business through a series of very large acquisitions, you, you're a major player in wealth management. How, how important is the generational transfer of wealth to a business like that? And what's the long run trajectory of that business looking out, I guess, three to five years?

I think it's existentially important. Existentially important. Um, the women and men who are going to be running, uh, the portfolio of their parents or the grandparents, uh, that transfer wealth is obviously in the many trillions, and it is absolutely critical for the financial advisors, uh, to be able to navigate that with the next generation. So part of the, uh, sort of estate and tax planning mentality are parametric tax loss harvesting product, which, as you know, is the one of the jewels in advanced that is now part of the kit, is so important. The fact that self-directed trading through our fantastic e-trade platform is very much in the hearts and minds of our, uh, you know, 19 million clients. It's absolutely critical that we're thinking about, uh, how we can navigate the client base from their self-directed trading through their financial advisor relationship, but then also as the client gets older, and the financial advisor gets older, how much confidence do I have that Morgan Stanley has a plan for that wealth to be in a, in a thoughtful way, transmitting tax effective way, and a well-allocated way, transmitted to the kids and the grandkids. We spend a ton of time thinking about that. I think technology can be very important in terms of building out probability sets on various rates, dynamics, and sector biases over the next 10, 20 years, but also some thought given to how do we want to think about financial planning for the kids, the grandkids, friends, donor advised funds, giving back. I think that's all, those are critical ingredients to the advice we give.

We have to let you go. I know you're an in-demand guy here, but we should continue this conversation at a later point.

It's super good to have me on.

Yeah. I always run out of time with you. Morgan Stanley CEO in new chair.

Thanks a lot. Appreciate it.

Ted Pick. Appreciate it.

Thanks. Appreciate it. Thank you.

All right, that's it for Yahoo Finance's Opening Bid.