Morgan Stanley’s wealth juggernaut helps power 14% profits rise

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Morgan Stanley’s profits rose 14 per cent in the first quarter, fuelled by a rebound in its investment banking and trading business and a better than expected performance from its juggernaut wealth management division.

Morgan Stanley said net income in the first three months of the year was $3.4bn, up from $3bn a year earlier, and comfortably ahead of analyst estimates compiled by Bloomberg of $2.7bn. 

The quarter was the first under new chief executive Ted Pick, and highlighted the ability of Morgan Stanley’s wealth management business to add new client assets on a large scale.

The division drew in billions of dollars more than investors were expecting in the quarter. Net new assets in wealth were around $95bn, well ahead of expectations for $62bn.

“As a result of strong net new asset growth, the firm has reached $7tn of client assets across wealth and investment management,” said Pick, who took over from long-time chief James Gorman in January.

Morgan Stanley has set a long-term goal of amassing more than $10tn in client assets.

The bank’s stock was up more than 3 per cent in pre-market trading. 

Morgan Stanley chief financial officer Sharon Yeshaya told the Financial Times that the quarter was a “proof point of what this business model can do in a relatively constructive environment”.

Profits in the wealth management division, which has about $5.5tn in client assets and has been a driver of Morgan Stanley’s growth in recent years, rose slightly in the first three months of the year. Analysts had expected them to decline. 

Morgan Stanley said about half of the $95bn in new assets came from its business targeting family offices, which serves ultra-wealthy clients.

The wealth business’s pre-tax profit margin of 26 per cent still lags behind a longer-term target of 30 per cent, which Morgan Stanley warned in January it would miss in the near term. With interest rates high, clients are keeping more of their wealth in cash, which is less lucrative for banks such as Morgan Stanley.

Morgan Stanley is also being probed by multiple regulators over how its wealth management division handles potentially risky clients. 

Revenues from equities trading — which analysts had expected to decline — were instead up 4 per cent at $2.8bn, though revenues from fixed income trading fell 4 per cent. 

Morgan Stanley’s investment banking business reported a 16 per cent increase in fees from a year earlier, benefiting from an improvement in mergers and debt and equity underwriting after almost two years of lacklustre activity.

But Morgan Stanley’s recovery in investment banking was less pronounced than at many of its rivals. 

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