amber: welcome to "bloomberg markets. matt: we are looking at near session high as bank earnings push up the benchmark index. looking at sp 4546 and also

investors buying bonds pushing down the yield. on the 10 year, the yield is all three basis points at 3.7794. the dollar index coming back. a string of losses from the dollar index the other day pushing it down to 1200. barely above that now. oil climbing back up again. it is up $1.70 at $75.85. amber: the dow is up 300 points. united health is half of that, getting an upgrade from bernstein saying it is a valuation opportunity to buy a company that is relatively attractive that has long potential. s&p, carnival cruise benefiting from an upgrade from argus research. bank stocks continuing to be embraced by investors despite

not necessarily a perfect set of results but those good enough for investors today. matt: morgan stanley one of those bank stocks that has jumped today. you can see the provisions set aside for credit loss is much higher than they were a year ago and the trend is up or ceo, james gorman, set on the earnings call that the trend in terms of a trading is promising and that is one of the things besides the revenue beat that has investors in the market buying those shares, pushing them up by at one point more than 5%. strong acceptance on wall street of earnings. we are going to hear from sonali basak. sonali: i am standing by at morgan stanley headquarters with the ceo and chairman james

gorman. it has been a blockbuster earnings reaction but a pivotal moment when you announcing you would step down next year sometime. how did you know this was the right time for you? james: thanks for coming over. at 14 years is a long time to do anything, and to run a global bank and deal with the changes going on in the world, it is important for organizations to refresh. it is certainly a long time to be a bank ceo and everybody has to find their entertainment. my focus is making sure this does well over the next 10 to 20 years. you need to give the next generation a chance they will do things differently and grow the way i wouldn't have imagined. it feels right. sonali: there is a big question

on who might take over next. how do you think about who the next person is? james: you are looking at a lot of criteria. first one is they are good at running businesses. when i took over i was working at the worst part of the company but i was turning it around. the board wants would business leaders but the other quality that they want to see is education. it is character and endurance, resilience, strategic sense, communication skills. we have three fabulous candidates that are all internal. they all have great business skills and now the board has the opportunity to figure out who is the best to leave morgan stanley for the years ahead. i think they can all do it. sonali: when you think about how much morgan stanley has changed

and frankly the idea that the profitability of the wealth manager is through the roof and more than you are seeing, does it make more sense for the future leader to come from some of those growth areas? james: i am not going to get into speculating, which is what i am sure you would like me to do but the board doesn't look so much at how specific instances are performing. they look at the enduring qualities of the reader and whether they have the kinds of skills you need to lead a complex institution. all three of the people we have internally are well-equipped and are great people and have great respect and have terrific values. we have an embarrassment of riches is all i will say. sonali: you ensure who doesn't get the job stays on board and is that something you worry about? james: not really. the senior leadership people and

cfos on the call and the chief legal officer, we have had a very significant leadership team working closely together for a long period of time. you share the same values. there won't be the drama that people perhaps look for in succession around this. i think it will be relatively seamless and lead to a great outcome. sonali: $200 billion in money for the first half of the year. it is quite breathtaking. how much is a function of the dislocations in the park it, the business you have taken on -- in the market, the business you have taken on? james: my guess is 10% related to that, so 90% related to just

the change of the business model we have put in place over the last 15 years and that business has figured out a variety of ways to grow client activity, through direct or the e*trade or the digital bank or workplace. we have had very low turnover avenue -- turnover of advisors. the beauty of it is it is no one single thing. this quarter was more advisor driven in last quarter but all are contributed. sonali: when you look at the stock price, you are on track to have the best performance in trading right after releasing your announcement what are investors latching onto? james: i think i should retire

today. isn't this the moment where you drop the mic or something. we had some big movements when the stock was low in 2012, 2014, 2016. it is reflective of the fundamentals are really strong. capital ratios, we will see when all of the banks report, but i am sure we have the highest capital levels of any major bank in the u.s.. there is evidence of growth. the combination of high conservative capital levels, obvious organic growth in the core businesses, and very high addend yield for what we do, i think the investors sensibly look past what's been going on.

ipo activity is obviously down, m&a activity is down, some fixed income trading was more muted. none of that matters. that is a point in time. that will change. deals will change and public -- and go public. market at the big picture items and said the rest of the stuff will come and that is why we are trading the way we are. sonali: when you look at investment baking trader and advisory, when do they come back and how robust will it be? tyler: i do believe -- james: i do believe it will vary. i have been to japan, england, france and all over the u.s. and every ceo i am talking to has tilted to a more forward-looking posture.

i think deals will start getting done. whether they have -- happen in the back half of this year i am not so sure. in my to be here but it will be during next year if not this year. sonali: you have booked within we hundred million dollar costs to severance packages, but it seems like it is starting to stabilize. do you think a rebound in this activity and you could bring more people on or do you still see it more cuts? james: we laid off about 1800 people last december and we knew that was an optimistic view. i said to the team, if by april things haven't turned, we have to unfortunately do it again and we ended up laying of another 3500 people. attrition is running almost 15% historical rates are. we have 83,000 employees. but to huge companies and we guaranteed every buddy their job during covid.

headcount was artificially high. i regarding this as bringing us back to the run rate and what it should be. it is very scale driven. i think we are about rate with headcount. obviously we have fiduciary responsibilities. we watch it carefully. sonali: your views sound rosy and it sounds like you are sanguine about the cross of different lines. secretary of treasury yellen told us she believes there may not be a recession. do you agree with that you? james -- with that view? james: i have said i thought that the recession risk is low. i have been between probability that likely we don't have a recession and if we do it is not going to matter that much.

i think things are playing out that way. chairman powell said it is possible to have a last landing. it has done that six times out of the last 11 reading periods . with un-of still under 4%, decent economic growth, stable markets and the bank balance sheets are strong and consumer balance sheets are ok, that is a pretty good backdrop. some are hurting more than others, but in the earnings, they are not really bad. they're not great but not disappointed. sonali: what keeps you up at night? if anything can derail the progress, what would it be? james: the china-u.s. relationship the gdp is 40% of the global gdp between the two countries.

china is more dependent on the rest of the world for trade. that is the tipping point. it is existential, which is the u.s. defaulting on debt. that didn't happen. thankfully they got through the charade again. what matters is u.s.-china geopolitical relationships. you have seen secretary blinken and now secretary yellen going there. after all the years of doing this, i don't worry about it. stuff happens and you deal with it. you have a strategy which is designed to hear he the company forward and you accept the inevitable disappointments along the way and that is just part of being leadership. sonali: there is something around the corner that has the potential to impact the businesses you have. new regulations in the united

globe and trading businesses. how you expect rules to eventually impact the returns of those businesses? james: i will try not to get to we the, but the rule has not been proposed. we have had three and i guess we will not get four and five europe has not caught up and complied with its own rules. the u.s. has had a system parallel to it and all of the banks have come through this cycle very well. based upon vice chair powell's speech, they are going ballistic and i expect it to be challenging for the banking system at first but if you read the speech by the vice chair and

commentary, it is clear they want input and they are going to need it. they are -- there are things proposed that i do not think are appropriate, like changing way they measure operating risk related assets based on the feet businesses you have. that is counterintuitive to what you want in fee-based businesses which is stability. i don't see why the u.s. financial system should be dictated by the european regulators. i just don't see that is going to be where it will end up there will be a lot of discussion and i guess is a lot of it does not get incremented before the end of 2026. we carry currently 260 basis point capital buffer. our requirement is 12.9%. so we are very conservatively positioned in anticipation whenever changes may happen.

they will happen over years. sonali: but the changes would still be under a new regime at morgan stanley. do you think the bank will have to make changes around its business lines if this rule will be as stringent? james: we wouldn't change our strategy. we would make adjustments but it is manageable. i am separating, is it manageable from is it the right thing to do. the u.s. economy is what matters. for the u.s. economy to thrive we need a strong aching system led by the largest blanks in the country and we should determine what is the right capital structure at the banks and not have it determined by a body outside of this country. sonali: there is the saying that if you squeeze wall street like a sponge will move elsewhere. rivals have so they are worried about it moving to nonbanks. do you share that concern and

what are the risks that are going unnoticed? james: if you pressure the regularly part -- regulated parts it will move because they don't have the same charges we have. it is a real risk. the supplemental leverage ratio takes the amount of capital you have and the size of your balance sheet and it basically hurts you for caring abounds even if it is on treasuries. there are consequences from decisions and that is why the regulators sensibly have asked for and will ask for a very long period and it will be very vigorous comment from me and others. we don't need a complete redo of the capital system here. we will make the case as to why it is so. sonali: what does life after morgan stanley look for you?

do you think it will stay in financial or consider a career somewhere else, perhaps politics? james: i am very happy with my life. my focus is on handing it over to my successor and making sure they have what i have described as the cleanest plate possible. we have a few remaining issues i want to work through and get those cleaned up and based on my experience i can handle some of this stuff more easily than someone starting day one. i will spend more time with my family and work in some capacity. i will teach a little bit. the beauty of life is there are a lot of things to do. i am embracing that. sonali: thank you for your time. as james gordon, ceo and chairman -- that is james gorman, ceo and chairman of morgan stanley. matt: he said he things banking has bottomed and may not come

back until 2024 but it does coming and shares are outperforming, up 6% on a daily basis. i thought to look back at morgan stanley over the last five years. if you type up any equity on the bloomberg terminal, you will see a five-year view. i put in morgan stanley is rivals, jp morgan, goldman sachs, wells fargo, bank of america, citi and morgan stanley has outperformed all of them over a five-year period. they are doing much better in the long run than any other banks so far over the last five years. i thought that was very interesting that they continue to outperform. amber: it absolutely is. they had a message five years ago going back focusing on wealth management and they delivered her this is an interesting set up for goldman sachs because have gotten disparate views of what the capital markets look like.

at morgan stanley and bank of america offering very different pictures. it will be interesting what this means for goldman come tomorrow. another stock we are watching is shares of microsoft, a record high after unveiling new pricing strategy for their ai offerings. they are also nearing the finish line when it comes to the big activision deal. or on what this means for the stock when we come back -- more on what that means for the stock when we come back. this is bloomberg. ♪ the first time you connected your godaddy website and your store was also the first time you realized...

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amber: time or stock of the hour. microsoft trading at an all-time high today as the company announces pricing plans for commercial ai software. microsoft restructuring its $69 billion acquisition of activision blizzard. today was the original deadline for the deal to go through of

the company needs to do more to ease government concerns. matt: they are definitely pushing ahead with the deal that looked dead in the water a couple months ago. they are also bringing out pricing for an ai product that will go to corporate clients as well as a deal with meta. let's bring in tyler radke, the cohead of the software department at citigroup. what a time to be a holder of microsoft shares. the stock performed phenomenally . would it do as well felt the positive developments in the activision blizzard takeover saga? does it matter to shareholders? tyler: the largest deal in microsoft history almost doesn't matter.

the driver of the stock has been opportunity around generative ai. you saw product announcements and new pricing, specifically on copilot which is responsible for sending the stock up five or 6%. they are more focused on the enterprise piece of the business, the extent activision closes, take that uncertainty out of the way and it creates a cleaner set up for the stock. bottom line, folks are excited about ai and opportunities and particularly to their 365 business. amber: what percent of microsoft's huge base could beat migrating over to the ai platform and how much of it comes from new customers altogether? tyler: if you look at the office

365, the productivity, it is 300 million monthly active users on various forms of pricing plans are today they announced for users that want to take advantage of copilot, that is an additional $30 a month. if they are able to just convert 5% of that user base over to the new copilot skew, this could add 40% to 50% -- or growth to office 65 business. that is a big number. a lot of users are on lower-priced plans but a huge installed base and the magnitude surprised us to the upside. many were expecting the price to be in the 10 to $15 range and we got $30 today. matt: how much of a lead does

microsoft have? i can imagine hearing these products, some people switching from ios back to windows if it is even called that anymore, i am not sure. nobody wants to use windows outside of an office place until maybe now. can it move the needle on computer sales? tyler: it is possible. the biggest driver will be around the opportunities beyond pc's. microsoft years ago lost the mobile battle. remember it windows phone and we don't see too many of those around today. this is around the next layer of computing, cloud computing, productivity and their share. and search, to your points, is an interesting market and microsoft only has 2% or 3%, it

is dominated by google. they announced separate enterprise search. that is also an opportunity. matt: thank you for joining us. this is bloomberg. ♪