As she leaves one of Wall Street's most highly scrutinized jobs for tech giant
Midway through a conference call to discuss Morgan Stanley's stronger-than-expected first quarter earnings, Porat was asked by sharp-tongued banking analyst Mike Mayo to reflect the regulation of Wall Street and her departure for the greener pastures of Silicon Valley.
"Ruth, you're yet one more banking executive to leave the industry. Any last comment about the regulation in the banking industry?" Mayo asked.
Porat's response celebrated the work that banks, particularly Morgan Stanley, have done to improve their balance sheets and become less of a threat to the broader U.S. economy. However, she also emphasized that firms are unlikely to return to the days before the crisis when returns on equity exceeded 30%.
Her comments were a victory lap of sorts for Morgan Stanley, which is beginning to show consistent success in using its wealth management business as a means to minimize its reliance on riskier trading operations. But, they also dwelled on Wall Street's new realities: lower returns, less glamour and more safety.
"I think that fundamental regulatory change was needed with the backdrop of '08 and it was implemented and I think there's been meaningful improvement in the stability and resiliency of the industry as a result with all that's been done; higher capital levels, liquidity, stress testing, recovery plans, resolutions plans, governance, all the changes in business activity. I think if you look back over the last five years, some made those changes kicking and screaming. I think we were of the view that it was clear where it was going and it was needed and are proud of the changes we've made," Porat said in response to Mayo's question.
Porat took over Morgan Stanley's CFO job in 2010 as the bank doubled down on wealth management as a means to create a stable funding base and more consistent stream of earnings. For years, it was her job to explain to a skeptical investor community how the strategy would pay off, even as competitors such as Goldman Sachs,
After initially slipping up on its wealth management push and suffering setbacks ranging from intermittent market panics like the European sovereign debt crisis to large legal settlements, the transformation of Morgan Stanley is taking hold. The bank achieved many of its 2014 profit targets and, in the first quarter, it hit recently established benchmarks for 2015. "While the firm has clearly made progress, there remains work to be done," CEO James Gorman said on the investor call.
Porat leaves Morgan Stanley in far better shape then she found it when assuming the bank's CFO role, and investors are now firmly behind its wealth management push. "Thanks very much for... your tremendous clarity of vision and explanation of everything over the last several years. We've appreciated working with you," Guy Moszkowski, a long-time banking analyst, told Porat.
As she reflected on leaving Wall Street, her tone changed. Lenders like Morgan Stanley are more resilient, and the hard work of post-crisis regulatory reform is well established, Porat said. But those changes also mean firms are likely to have lower returns.
"I think that the main point is the industry's substantially more resilient and that's a big accomplishment. It's a lot of work to get here for all of us. It may mean lower returns, but it means a more resilient industry and that's a positive place to be," Porat said.
Given her comments, it makes sense she's leaving Wall Street for Silicon Valley. The task of reform, perhaps, is behind Morgan Stanley and an ambitious corporate executive like Porat might take such a moment to look for a new challenge. Meanwhile, Silicon Valley is filled with many of America's fastest-growing and most highly-followed corporations, but as the tech sector grows in influence on stock markets, some basic corporate practices haven't kept up.
Apple spent years under CEO Tim Cook fighting investors over its ever-growing stockpile of cash, only to then quell the disquiet by launching the biggest capital return in the history of Corporate America. Those dividend payments and stock buybacks have freed Cook from controversy on Wall Street, and Apple's cash balances remain on the rise, giving ample room for the company's next big investment.
Google, Porat's soon-to-be employer, may be in a similar position.
The company's cash stockpile continues to grow, as does its investment in businesses that have little to do with its dominant presence in web search. Faced with a stagnant share price over the past 16-months, Google may find a seasoned Wall Street veteran to be the perfect fit if it needs to change or better explain its capital allocation priorities.
Underpinning Porat's discussion of change on Wall Street, however, is pay. Seven years after the financial crisis, executive pay on Wall Street remains closely scrutinized by regulators and legislators. In crisis-free sectors such as technology, however, firms have far greater leeway.
Porat, who made $14.8 million in 2014, is set to earn at least $70 million over the next two years at Google. If crisis reforms are about lower returns for Wall Street megabanks, they also are about lower paychecks for top executives.
