Morgan Stanley Q4 Wealth Revenue Up 24%, Profit Down 4%

wolterke - stock.adobe.com

Revenue at Morgan Stanley’s wealth management division rose 24% to $5.7 billion in the fourth quarter, rocketed by trading and net interest income gains from its early October acquisition of  E*Trade Financial and a jump in new client assets.

Pretax profit margin, Morgan Stanley CEO James Gorman’s benchmark for wealth business performance, fell to 18.8% from 22.9%, excluding the impact of $231 million of integration-related expenses, the company said.

On a conference call with analysts, Gorman said he had no regrets about the $13 billion E*Trade purchase, citing revenue and cost synergies that are beating internal expectations.

“Our decision to buy E*Trade was indeed the right one,” he said, noting the growing “digital” allure of the discount broker to investors, the potential to turn them over to “client-facing” advisors as their wealth increases and funding synergies from its bank deposits.

E*Trade set a 2020 record for average trading volume, net new assets and conversion of stock plan customers’ employees to its platform, Morgan Stanley said.

The firm underscored Gorman’s certainty by forecasting that wealth management’s pretax margin will rise to a range of 26-30% over the next two years and exceed 30% beyond that. (E*Trade boasts margins in the high 30% range.) For all of 2020, pretax margin at Morgan Stanley was 23%.

Morgan Stanley’s almost 16,000 brokers attracted $24.1 billion of new assets into fee-based accounts during the quarter, down 3% from the year-earlier period.

The wealth unit also for the first time released net new assets generated across its newly christened “advisor-led,” “self-directed” and “workplace” channels. The total new money more than doubled to $66.1 billion in the fourth quarter, and hit a record $206 billion for the year. Loans to wealth customers rose 22.4% to $98.1 billion as of year end.

Morgan Stanley ended 2020 with 15,950 advisors—482 more than 12 months earlier and 481 higher than at the end of the third quarter. Much of the increase came from the inclusion of more than 200 E*Trade advisors who work primarily from call centers, a Morgan Stanley executive said.

Morgan Stanley, which is waiting for regulatory approval to buy asset management firm Eaton Vance Corp., has already begun referring E*Trade customers seeking advice to select advisors, the executive said.

Wealth management generated 41.6% of Morgan Stanley’s total fourth-quarter revenue and 23.6% of its net income. The bank as a whole reported a 26% jump in quarterly revenue and a 51% increase in net income on Thursday on the back of better-than-expected trading results in its institutional securities business. The company also has announced a plan to buy back $10 billion of shares in 2021.