(Recasts headline, adds data on millionaire clients)
By Jed Horowitz
NEW YORK, April 17 Morgan Stanley's big
bet on wealth management is looking strong as fees, commissions
and interest collected by its more than 16,000 brokers fueled a
13 percent rise in the business's first-quarter net income from
a year earlier to $423 million, the company said Thursday.
Chief Executive James Gorman, who devised the plan to buy
Citigroup's Smith Barney and become the world's biggest
stockbroker as measured by sales force, said issues related to
integrating the firms over the past five years are now resolved.
The stability and profitability of Morgan Stanley's wealth and
asset management businesses, he added, made it possible to
double the firm's dividend payment and install a $1 billion
stock buyback program this year.
"Growing earnings from wealth and investment management
suggest an annual dividend of two or three times recent levels,"
he said on a conference call with analysts. Investors in the
sixth largest bank can expect dividend and share buyback payouts
in the future to just about track the profit Morgan Stanley
makes in wealth management, subject to regulatory approval, he
Like wealth management rivals such as Bank of America's
Merrill Lynch and Wells Fargo Corp's Wells Fargo
Advisors, Morgan Stanley's brokers are basing more of their
sales on fee-based accounts rather than transaction-based
commissions and encouraging traditional brokerage customers to
buy mortgages and other loans from their bank affiliate.
Assets collected by brokers in the first quarter rose 24
percent from a year ago and 2 percent from the fourth quarter of
2013 to $19 billion. Total fee-based assets in client accounts
reached a record $724 billion at the end of the quarter, helped
by market gains as well as new assets.
Wealth management in the first quarter comprised 40.6
percent of Morgan Stanley's total revenue and 30 percent of its
pretax profit from continuing operations. Wealth
management's profit margins continue to outpace those of the
company's other businesses. Its pretax profit margin hit 19
percent in the quarter, and the firm's chief financial officer
said it is on target to reach 22 percent to 25 percent by the
end of next year. Its return on equity from continuing
operations was 14 percent in the first quarter versus 8.9
percent for the company as a whole.
Big banks increasingly point to their growing wealth
management businesses as stable counterparts to their riskier
trading and capital-raising businesses. Bank of America's
Merrill Lynch on Wednesday said assets managed in its
wealth unit climbed 13 percent in the first quarter to $841.8
billion and total client balances in all brokerage and bank
accounts jumped 7 percent to $2.4 trillion. Its net income
inched up 1 percent to $729 million.
Revenue in Morgan Stanley's wealth businesses, which caters
to households with at least $250,000 to invest, trailed record
results in last year's fourth-quarter, although asset management
and other fees crept up 2 percent since the beginning of the
year to $2.0 billion. Fee-based asset accounts at both Morgan
Stanley and Merrill Lynch comprise 37 percent of total client
assets and are growing, both firms said.
Investment banking, trading and investment income in Morgan
Stanley's wealth unit was hurt by fewer trading days in the
January-March period and by a virtual famine in issuance of
closed-end funds, an important product for U.S. retail
investors, Ruth Porat, the company's chief financial officer,
said on the conference call.
She forecast that asset management fees in the second
quarter are likely to grow because of higher market values, and
also said compensation expenses should fall from seasonally
elevated first-quarter levels when corporations pay higher
social security and Medicare taxes for employees.
The strongest potential for wealth management growth
continues to lie in selling large mortgages and loans
collateralized by investment portfolios to wealthy clients,
"We've got a great client base (and) we're under-penetrated
with loan products," Porat told Reuters, repeating that lending
is very profitable but that Morgan Stanley trails competitors
such as Merrill and Wells Fargo in selling credit.
Loans and commitments to lend in the first quarter rose 58
percent from a year ago and 12 percent from last year's fourth
quarter to $33.1 billion. Net interest income, largely from
sales of credit products, rose 30 percent from a year ago at
Morgan Stanley Wealth to $539 billion.
The company also is targeting its services primarily to the
very wealthy. Seventy-seven percent of of its $1.9 billion of
retail client assets come from households with $1 million or
more to invest.
Morgan Stanley's brokerage force edged up 1 percent from a
year ago to 16,426 financial advisers, in contrast to the
smaller group of 13,725 brokers at Merrill Lynch. The Merrill
advisers produce more than $1 billion of annual revenue based on
first-quarter results while annualized fees and commissions for
Morgan Stanley brokers are $881 million, up 4 percent from a
(Reporting By Jed Horowitz and Lauren Tara LaCapra; Editing by