CEO View: What’s Changed 10 Years After the Global Financial Crisis?

At Franklin Templeton’s recent Global Investor Forum in New York, our CEO Greg Johnson participated in a panel discussion with three other CEOs in the financial services industry: James Gorman of Morgan Stanley; Jay Hooley of State Street and Barry Stowe of Jackson National Life. They discussed some of the changes in the markets that have occurred in the 10 years since the global financial crisis, what they learned—and what might trigger the next crisis.

Host/Richard Banks: Hello and welcome to Talking Markets with Franklin Templeton Investments: exclusive and unique insights from Franklin Templeton.

I’m your host, Richard Banks.

Ahead on this episode, we hear from a panel of CEOs in the investment industry at Franklin Templeton’s Global Investor Forum in New York. They look back and ahead 10 years after the global financial crisis. The CEOs speaking are: Greg Johnson of Franklin Templeton Investments; James Gorman with Morgan Stanley; Jay Hooley of State Street; and Barry Stowe with Jackson National Life. And, leading the discussion is Kip McDaniel, chief content Officer of Institutional Investor. We hope you enjoy the conversation.

Kip: 2008 was, in our lifetimes, the most extreme financial event that we’ve had. Greg, what is the biggest change beyond a focus on risk-management coming out of the crisis that you see?

Greg: Having a strong balance sheet for us was something that we got criticized a lot on, and I think it served us extremely well. If you look at the kind of firms that came out on the other side, I think that really just confirmed our belief in having that cash on the balance sheet.

Kip: Jay, same question to you.

Jay: We were kind of a sleepy little Boston-based custodian bank, and we were SIFI’d [named a Systemically Important Financial Institution] in the crisis which was a bit of an adjustment, you know, learning how to become systemically important and all the regulation that came. I think the regulators completely missed this crisis. When you look at the capital in banks, the liquidity, the aftermath of that is—and this is mostly banking—is all of the regulation that’s hit, which is likely to spur what will be the next issue in the marketplace, in my opinion.

Kip: Okay. James, I know you took the top role in 2010, but the same question applies to you.

James: Well, for us as an institution, I think I’d need about seven hours to get into the first chapter. I mean, we became a bank. We weren’t a bank. We sold 22% of the company to another bank, Mitsubishi Bank. We shut all of our prop-trading and prop-investing businesses that used more than, in aggregate, 3% of capital. I’ll give you one fun fact. We had, I think, about less than 100 risk limits across the company, pre-crisis. So a risk limit might be, total exposure to Russia. We now have about 25,000, so the whole business completely changed.

Kip: It wasn’t an easy change. Talk to us a little bit about the difficulties you faced in changing not only the firm’s business lines, but it sounds like, the firm’s culture as well.

James: Well, in some ways, I think it was very easy because the hardest management challenges are when there’s not an obvious problem to solve, and that causes you either to do nothing and you lose pace because the world is moving away from you, or to compulsively act because you’re anxious and you think, if I do nothing, then I’m losing pace and you do something stupid. It’s much easier if you’ve got identifiable problems to solve. So, not everybody in the organization can see that the changes you’re making are because you can see the problems that we have and you have to address them. That’s why you have some of the cultural backlash until you kind of prove it out. But in some ways, managing in a time of crisis or under real stress is actually a relatively straightforward management challenge because you’ve got to take your shots, you got to make decisions. Not everybody is going to like them, but if you don’t do anything, then we’re all toast. It’s actually a privilege to manage during a time of real stress.