Morgan Stanley’s $10 trln target leads to another

James P. Gorman, chairman & CEO of Morgan Stanley, testifies before a House Financial Services Committee hearing on Capitol Hill in Washington
James P. Gorman, chairman & CEO of Morgan Stanley, testifies before a House Financial Services Committee hearing on "Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 Years After the Financial Crisis" on Capitol Hill in Washington, U.S., April 10, 2019.

NEW YORK, Jan 19 (Reuters Breakingviews) - James Gorman has set his firm a big new target and hinted at another. The Morgan Stanley (MS.N) boss on Wednesday outlined fresh long-term goals including an ambition to grow the Wall Street firm’s client investments to $10 trillion, from $6.5 trillion today. Gorman has touted that number before, though not in writing. Investors can now do the math on what it would mean for them.

Like its rivals Morgan Stanley had a busy year underwriting capital raising, advising on deals and trading stocks and bonds. Investment bank revenue was 46% higher than in 2019. But future growth will come largely from the wealth management business, which includes online brokerage E*Trade, and investment management. Together those divisions attracted roughly $140 billion of new money in the fourth quarter.

If Morgan Stanley hits $10 trillion of assets it will be the same size as fund-management colossus BlackRock (BLK.N) is today. Right now, the Wall Street firm makes around 0.5 cents a year in revenue per dollar it oversees. If Gorman can boost assets without lowering fees, annual revenue will be $50 billion.

Gorman says he wants the wealth business to earn a 30% pre-tax profit margin. Apply that to the expanded revenue, deduct tax, and Morgan Stanley’s fund businesses would earn $12 billion. Investors currently value BlackRock 16 times the company’s expected 2024 earnings, according to Refinitiv. At the same multiple, Gorman’s business is theoretically worth $190 billion.

On top of that there’s still investment banking and trading. That’s unlikely to grow very much. Assume it reverts to $6 billion or so in annual earnings, a bit more than it used to make before the pandemic-induced boom. At a more modest 10 times multiple it’s worth $60 billion. The two parts of Morgan Stanley combined could then be worth $250 billion, almost 50% more than today.

Rivals will have other ideas, and the battle for customers’ money is fierce. But the unspoken goal of a 50% uplift in Morgan Stanley’s share price isn’t a bad one for what are likely to be Gorman’s last years at the firm he has led for over a decade. He has joked that Morgan Stanley could be a $200 stock – double its level on Wednesday. Unless stock markets really get carried away, that sounds like a target too far.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


- Morgan Stanley on Jan. 19 reported $14.5 billion of revenue for the fourth quarter of 2021, a 7% increase on the same period a year earlier.

- Chief Executive James Gorman set out new long-term targets for the firm, including growing client assets under management to $10 trillion, from $6.5 trillion at the end of 2021, and earning a return on tangible common equity of at least 20%. Morgan Stanley made a 20% return in 2021.

- The wealth management business, which includes E*Trade, the brokerage Morgan Stanley bought in 2020, added almost $1 trillion of client assets in 2021, and reported a 27% increase in revenue.

- Morgan Stanley shares were up 1.7% at $95.6 by 10:30 a.m. (1530 GMT) on Jan. 19.

Editing by Peter Thal Larsen and Sharon Lam

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