* Gorman faces tough questions from protesters
* Shareholders approve pay and director proposals
* Chants drown out vote tally
By Lauren Tara LaCapra
PURCHASE, N.Y., May 15 (Reuters) - Anti-Wall Street protesters upstaged Morgan Stanley's annual meeting on Tuesday, lobbing tough questions at Chairman and Chief Executive James Gorman and shouting negative comments over a bank official who was attempting to read a tally of shareholder votes.
The 53-year-old CEO kept his cool through the meeting, but took protesters to task after one accused him and the board of directors of "immoral" and "unethical" practices. Among protesters' complaints were the bank's high pay packages, job cuts and financial reform lobbying efforts.
"I take umbrage at the suggestion that our board did anything unethical and I can't just let that sit out there," said Gorman.
He went on to say that although some of Morgan Stanley's business practices, including mortgage servicing, had been poor in the past, "I don't regard those as immoral or unethical."
After engaging in debate with some members of the protester group, which identified itself as "The 99% Spring" and was similar in tone to the "Occupy Wall Street" movement, Gorman instructed Corporate Secretary Martin Cohen to announce the preliminary shareholder vote tally.
But protesters quickly drowned out Cohen by yelling negative comments about Morgan Stanley and Wall Street.
"We will not be quiet until we create a system that prevents the 1 percent from ripping off the 99 percent," they chanted in a call-and-response fashion.
Once the protesters had finished their chant, Cohen announced that 93.6 percent of shareholders voted for the election of directors, 94.8 percent of investors approved proposed compensation for top executives and 81.4 percent approved a plan to add clawback provisions to bonuses stemming back to 2007.
There followed a second, lengthier question-and-answer session between Gorman and shareholders - who were mostly protesters - that pushed the meeting to over an hour.
After the meeting, which was staffed with security guards and police, Gorman shook hands with a few more supportive shareholders and fielded more questions from reporters.
Gorman said that Morgan Stanley does not have positions similar to the derivatives trades that have caused at least $2 billion in losses for competitor JPMorgan Chase & Co. Morgan Stanley's corporate treasury desk, which manages the company's excess liquidity, is "conservative," he said.
Gorman also said he does not believe JPMorgan's trading losses, which caused negative reactions from rating agencies for that bank, will affect Moody's Corp's assessment of Morgan Stanley's rating.
"I don't think JPMorgan has anything to do with how Morgan Stanley is rated," said Gorman.
Moody's is in the process of assessing downgrades for several large banks, and has said it might lower Morgan Stanley's three notches, from "A2" to "Baa2," which is just two notches above junk. Moody's has an open dialogue with Morgan Stanley as it gears up for the release of its assessment in June, Gorman said.
Gorman, who opened the annual meeting by saying he hoped it would be "respectful and orderly," had been prepared for the protesters. All considered, he said, "I thought it was pretty smooth."
A shareholder who shook hands with Gorman said he was upset that the event was dominated by protesters' political statements rather than more traditional shareholder concerns. "I want the stock to go back to where it was - that's all I want," he said.
Morgan Stanley shares were up 0.3 percent at $14.35 in afternoon trading on Tuesday. Its shares closed at $14.30 on Monday, less than half the company's stated book value of $31.42 as of March 31.