Dec 4 The main reason Morgan Stanley's
wealth management profits lag competitors is because the firm
does not have as big of a lending business, Greg Fleming, the
head of Morgan Stanley's wealth division said at an investor
conference on Tuesday.
Morgan Stanley is focused on offering mortgages, tailored
loans, securities-based lending and other lines of credit to
high net worth clients to catch up to rivals, Fleming said.
"This is one of the biggest areas for growth for us going
forward," Fleming said at a Goldman Sachs Group Inc
Morgan Stanley will also be able to lend more once it gains
access to $58 billion in deposits that are still being held at
Citigroup Inc because the two banks own the wealth
business as a joint venture. Morgan Stanley plans to buy out
Citi's remaining 35 percent stake by 2014.
Fleming, who is president of Morgan Stanley's wealth and
asset management units, has promised investors that Morgan
Stanley Wealth Management will achieve a pretax profit margin of
roughly 15 percent by the middle of next year.
He reiterated that goal on Tuesday, but said the "key
difference" between Morgan Stanley Wealth Management's profit
margin and that of its rivals is net interest income, or the
profit that banks earn from making loans.
Last quarter, Morgan Stanley Wealth Management reported a
pretax profit that was 13 percent of net revenue, excluding
one-time charges. By comparison, Bank of America Corp's
wealth unit reported a pretax margin of 20.1 percent and Wells
Fargo & Co's wealth business reported a pretax margin of
18.2 percent. Those two banks, which also have significant
lending operations, are Morgan Stanley's top rivals in the U.S.
As Reuters reported earlier, some former Morgan Stanley
brokers cited the firm's lack of lending ability as a reason
they defected to rivals with bigger balance sheets.
Morgan Stanley has taken steps to build out its lending
business over the past two years, though it started from a low
base, Fleming said.
It now has 170 bankers working with financial advisers to
offer loans to clients. Its loan balances were $32 billion at
the end of the third quarter, up 28 percent since the end of
2009, while net interest income was $510 million, up 23 percent
over the same period.
Still, its loan balances and net interest income are roughly
one-third of its biggest rival, Bank of America, which has 600
bankers working with advisers.