UPDATE 1-Morgan Stanley's Gorman says worst behind, sees smaller reserve build in Q2

(Adds comments from conference, CNBC interview)

June 9 (Reuters) - Morgan Stanley Chief Executive Officer James Gorman said on Tuesday the bank expects to set aside a smaller amount of money for potential loan losses in the current quarter, compared with the first quarter.

“The worst is behind us,” Gorman said regarding the bank’s reserve build, while speaking at Morgan Stanley’s annual U.S. financials conference.

He attributed the improvement in part to the bank’s credit portfolio, which does not include a credit-card business or lending to small businesses - sectors badly hit by the COVID-19 pandemic.

Gorman also said the bank expects to cover its dividend “very easily” this year, and that it would look at reinstituting buybacks in the next several months, once there is more clarity on the health of the economy.

He added that a “vast majority” of employees will continue to work in offices, and that the bank will not move staff out of big cities.

Speaking to CNBC later in the day, Gorman said the dramatic recovery in markets has been a surprise to him.

Markets have bounced back in recent weeks on the back of a surprisingly strong recovery in the labor market, consumer confidence, and businesses reopening. ( (Reporting by Bharath Manjesh in Bengaluru and Elizabeth Dilts Marshall in New York; Editing by Saumyadeb Chakrabarty and Shinjini Ganguli)