Wealth Management Shines For Morgan Stanley, Shares Rise 4%

Jan 17 2014, 11:45am CST | by

Wealth Management Shines For Morgan Stanley, Shares Rise 4%

That joint venture with Citigroup is finally starting to feel good for Morgan Stanley investors.

The wealth management unit put up record revenue of $3.7 billion, up 12%, and net income jumped 78% to $476 million.

The unit, made up of 16, 456 financial advisors, was the major highlight in Morgan Stanley’s quarterly earnings. Overall, net income fell to $181 million, from $594 million a year earlier. The results included $1.2 billion for legal reserves the firm may need for mortgage-related investigations.

While investment banking revenue had a nice quarter with revenue popping 11%, trading results were disappointing. Revenue from fixed income & commodities trading dropped 15% from a year ago. Overall, total sales & trading revenues fell 4% from the fourth quarter of 2012.

Since the crisis, Morgan’s CEO James Gorman has shifted the firm’s focus to wealth management over trading and investment banking. Wealth management, in general, provides steady fees even in down markets whereas trading is much more volatile.

Morgan Stanley’s major shift to wealth management came in January 2009 when it agreed to a joint venture with Citigroup for a piece of Smith Barney. Slowly, Morgan began buying chunks of Smith Barney and finally got the green light to buy the remaining 35% stake last June.

It’s paying off. Morgan Stanley said it’s increased the pre-tax margin target for the wealth management unit to 22% – 25% by 4Q 2015. That’s up from its previous goal of 20% – 22%.

With that Citi Smith Barney deal complete, Morgan the largest brokerage force in the industry with nearly 16,500 financial advisors. That tops competitor Bank of America Merill Lynch which houses 15,316 advisors.

Both BofA and Morgan have been busy putting more effort behind their wealth management units than ever before. And why not? The Merrill unit has come through for many of BofA’s painful quarters providing much needed revenue, profit and net flows.

Now that is has full claim over the combined brokerage force, Morgan Stanley is banking on its wealth management unit to do the same.

Source: Forbes Business


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