Morgan Stanley’s wealth management division reported $3.4 billion in revenue in the fourth quarter, up 7 percent versus the year ago quarter, as higher commission revenues, asset management fees and net interest income offset lower trading revenue. Pre-tax income for the quarter was $390 million, up 69 percent over the previous year.
On a conference call Thursday morning, Morgan Stanley CEO James Gorman and CFO Ruth Porat said they are pleased with the progress of integration in the wealth management division, a joint venture with Citigroup in its spun-off Smith Barney division, as well as its performance.
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“We were pleased to see continued retail investor engagement in the fourth quarter, reflected in higher transaction revenues,” said Porat on the call. “The integration is very much on track. We’re still very much focused on a PBT [pre-tax profit margin] of 20 percent.” The building blocks to get to that 20 percent are completing the integration, scheduled for 2012, and building up the lending business, she said, but it is also very market dependent. Every 100 point change in the S&P 500 impacts the margin by 1 percent, as does every 50 basis point change in the Fed Funds rate, she said.
But James Gorman said that the margin on the business isn’t a big worry for the firm. “It doesn’t give us a whole lot of anxiety,” he said. “This business used to have revenues of $9 billion and a 7 to 8 percent margin. It now has revenues of over $12.5 billion.”
Pre-tax profit margins for the division climbed to 12 percent in the fourth quarter, up from 7 percent a year ago. Integration costs for the quarter totaled $63 million, Porat said on the call, while commission revenue was up 31 percent versus the third quarter, due to new issuance and secondary trading revenues. Among priorities for 2011 and 2012 for the division are “growing the transaction and advisory business, increasing deposit and lending revenue and, after completion of the integration in 2012, to see commensurate cost reduction,” she said.
Client Assets, FA Productivity, Turnover
Morgan Stanley Smith Barney reeled in $14.1 billion in net new assets in the fourth quarter, putting total client assets at $1.67 trillion. Fee-based assets as a percent of the total rose to 28 percent from 24 percent in 2009. Meanwhile, assets in the division’s bank deposit program rose just a hair to $113 billion, up from $112 billion in the year ago quarter.
Turnover among top revenue-producing financial advisors at the firm was “near historic lows,” Morgan Stanley said in a press release. Total financial advisor headcount sat at 18,043, down from 18,119 in the third quarter. Annualized revenue per global advisor rose to $742,000 from $686,000 in the third quarter and $692,000 a year ago, while client assets per FA rose to $93 million from $88 million. The firm closed about 40 retail locations, which fell to 851 from 895 a year earlier.
Morgan Stanley as a whole reported fourth-quarter net income of $836 million, up 35 percent versus 2009, as revenue rose in its investment-banking, wealth- and asset-management businesses from a year ago. This was offset by declines in trading activity, reflecting an industry-wide trend. Profit margins for the quarter were 15 percent.