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Morgan Stanley’s bet on wealth management is paying dividends.
The global investment bank posted strong second quarter results, largely driven by the wealth division, which reported record profit margins of 21 percent.
Strong performances by its wealth management operations, as well as its investment banking and equity sales helped Morgan Stanley beat earnings estimates. Overall, the bank posted a profit of $1.3 billion, up 46 percent from a year earlier.
Morgan Stanley also reported higher revenues of $8.6 billion, up from the $8.5 billion a year ago, but down slightly from the first quarter’s $8.9 billion. Earnings per share came in at $0.60 a share once adjusted for debt valuation, just slightly higher than the Street estimate of $0.56, according to Seeking Alpha.
In an earnings call Thursday, CEO James Gorman called the wealth management business a “significant ballast” that offset historically low levels of volatility during the second quarter. Additionally, the reported 21 percent pretax profit margin was the highest level hit since the inception of the firm's Smith Barney joint venture. Gorman said Morgan Stanley would continue to drive pre-tax profit margins to a target of 22-25 percent by 2015.
The wealth management business saw profits of $767 million in the second quarter, up almost $112 million, or 15 percent, from the pre-tax income levels reported a year ago. The company attributed the double-digit growth to higher deposit and loan balances. Revenues also rose about 5 percent year-over-year, reaching $3.7 billion from $3.5 billion in June 2013. Gorman praised the results, saying revenues continued to grow in the face of reduced industry-wide transaction activity.
Asset management fee revenues hit $2.1 billion, an increase of almost 10 percent from a year ago. Morgan Stanley attributed the growth to an overall increase in the firm’s fee-based business, which now makes up 38 percent of total assets. Client assets in fee-based accounts hit $762 billion, up 21 percent from June 2013. The wealth management unit reported fee-based asset flows were $12.5 billion for the quarter.
Within the wealth management division, overall client assets climbed to record levels, surpassing $2 trillion, up from the $1.9 trillion reported in March. Gorman called the increase a “tremendous achievement,” saying the $2 trillion mark was three times the number of client assets Morgan Stanley held in 2006.
Morgan Stanley saw a net loss of about 100 financial advisors (about 1 percent) during the second quarter, reporting 16,316 reps were with the firm. But advisor production was up 3 percent; with Morgan Stanley reporting annualized revenue per advisor was $908,000, up from the $881,000 reported last quarter. Total client assets per advisor were $123 million, up 13 percent from the prior year.