Morgan Stanley’s wealth management business saw mixed results in the fourth quarter with profits down 8 percent and revenues up 1 percent amid a difficult market, but CEO James Gorman says the firm will meet its profit margin targets by the end of the year.
“Our final results this year reflect a number of idiosyncratic issues, including tax benefits, compensation changes, FBA implementations and legal reserves. In addition, the quarter reflects a difficult market and trading environment across the industry,” Gorman said in a webcast presentation Tuesday.
Overall, the firm reported net income of $1 billion, or $0.47 a share, in the quarter, up from $84 million a year ago. Excluding adjustments, the earnings missed expectations by $0.08, according to analysts polled by Seeking Alpha.
Morgan Stanley reported $7.76 billion in net revenues for the fourth quarter, a 13 percent slip from the $8.91 billion earned in the third quarter. ‘We’re clearly not immune to the unfavorable market environment,” Gorman said Tuesday, commenting on the bank’s dismal fixed income and trading losses in the institutional securities unit, which reported a pre-tax loss from continuing operations of $863 million.
But Gorman noted that 2014 was still a strong year particularly in regards to the progress made on the firm’s stated goals of hitting a 22 to 25 percent profit margin in the wealth management business. Morgan Stanley succeeded in hitting the 20 percent profit margin goal for the division in 2014.
Within wealth management, the firm reported $736 million in pre-tax income, down 8 percent from the third quarter but up 3 percent from a last year’s $715 million. Revenues were up $3.8 billion in the fourth compared to $3.77 billion the previous quarter and $3.72 billion a year ago.
Morgan Stanley’s business mix was also highlighted in Tuesday’s webcast, comparing 2006 revenues to the 2014 revenues: The wealth management division now accounts for about 40 to 45 percent of the firm’s net revenues, compared to the less than 25 percent in 2006.
The firm reported overall client assets of $2.03 trillion, up slightly from last quarter’s $2 trillion. Fees from asset management hit $2.1 billion, up 5 percent from a year ago. Client assets in fee-based accounts increased 13 percent over the past year to $785 billion.
Gorman says the firm’s wealth management division will continue to focus on high-net-worth and ultra-high-net worth clients, as they have the most complex planning and investment requirements.
The firm is up 35 percent in assets from clients with $1 million to $10 million since the end of 2009 and up 82 percent among clients with more than $10 million.
Morgan Stanley had $2.3 billion in compensation expenses, up from $2.1 billion a year ago. The increase was driven by a reduction in "the average deferral of discretionary incentive compensation awards for the 2014 performance year and the acceleration of vesting of certain deferred cash-based incentive compensation," according to the firm.
These increases came despite a net loss of 380 financial advisors, to 16,076, since the end of 2013.