* Wealth management leads other units in profit, revenue
* Adviser count falls modestly, production per broker rises
* Seeks to buy all of Smith Barney as soon as possible
NEW YORK, Jan 18 Morgan Stanley
executives made good on their promise to reap profits from the
bank's burgeoning wealth management business, reporting on
Friday that profit margins in the business soared in the fourth
The New York-based bank's global wealth management group
provided more revenue and pretax earnings in the quarter than
the investment banking and asset management divisions, and
proved more profitable than many analysts expected.
Morgan Stanley has made a bigger bet on retail investors
than its major rivals by buying most of Citigroup's Smith
Barney brokerage. Revenue from the unit's brokers was up 8
percent to $3.46 billion in the fourth quarter, while profit
after distributions to Citigroup soared 111 percent to $277
Pretax income in the group, which focuses primarily on
households that keep at least $1 million at the bank, more than
doubled from a year earlier and from the third quarter, to $581
Pretax profit margin jumped to 17 percent, from 7 percent a
year earlier and in the third quarter, as revenue rose and
expenses fell, surprising some analysts who forecast the company
would have trouble meeting its target of a mid-teen margin by
the middle of 2013. Greg Fleming, head of the wealth unit, has
acknowledged that problems integrating the computer workstations
of Smith Barney and Morgan Stanley advisers put profit goals
years behind schedule.
Morgan Stanley bought its first stake of 51 percent of Smith
Barney in January 2009.
Morgan Stanley Chief Executive James Gorman is betting that
selling investments to the wealthy will be a stable business
that counters the volatility in trading and raising money for
"Once you put it on the railway track it will always run,"
Gorman said of wealth management in an interview on CNBC Friday
The bank hopes to accelerate its purchase of the 35 percent
of Smith Barney still controlled by Citigroup, he said, and will
own 100 percent within two years at the latest.
RECRUITING AND REDUNDANCY
Morgan Stanley kept its brokerage count relatively flat
during the fourth quarter. It ended 2012 with 16,780 advisers
worldwide, 49 fewer than three months earlier and down 732 from
the end of 2011.
Bank of America Corp's Merrill Lynch wealth unit,
once led by Gorman, said on Thursday that its brokerage count
fell by 371 advisers during the fourth quarter to 14,917.
Morgan Stanley spokesman James Wiggins said most brokers who
left the bank were "underperforming advisers."
In 2012, at least 243 veteran advisers who managed more than
$39.2 billion in assets left Morgan Stanley, including several
teams that managed more than $1 billion, according to moves
tracked by Reuters.
In the fourth quarter, annualized revenue per broker at
Morgan Stanley climbed 12.5 percent from a year earlier to
$824,000, and rose 7.6 percent at Merrill Lynch to $935,000.
For years, big brokerage firms have been paying
multimillion-dollar bonuses to recruit top brokers from one
another, but Gorman said on CNBC that the recruiting wars have
He also said investors are not in "total despair" over
market behavior and the economy, but are confused. When that
clears up, he forecast a wave of investing and trading, saying
that "$90 billion is sitting there waiting to get into the
Large brokerage firms including Merrill and Charles Schwab
Corp reported huge flows of assets into brokerage
accounts at the end of 2012 but very restrained trading. Morgan
Stanley said its total client assets in wealth management at
year-end were up 8 percent from a year earlier to $1.8 trillion,
with 32 percent of the total in fee-based accounts that produce
revenue whether or not clients trade.
Morgan Stanley last fall resolved a dispute over the value
of Smith Barney, agreeing to a purchase price that valued the
brokerage at $13.5 billion, much lower than Citigroup estimated.
Given Friday's profit report, some analysts suggested Morgan
Stanley low-balled its estimates of the unit's profitability by
including high expenses it had in a troubled integration of the
Wiggins, the Morgan Stanley spokesman, declined to comment.
Morgan Stanley as a whole beat analysts' profit forecasts,
combining the strong wealth results with strong trading revenue
and falling compensation costs. Its shares jumped 6 percent in