Morgan Stanley Withstands Market Headwinds to Post Profit Uptick

Morgan Stanley Withstands Market Headwinds to Post Profit Uptick

Morgan Stanley’s wealth management unit saw a 4 percent uptick in profits for the fourth quarter, outperforming peers who struggled with the strong yearend market volatility.

Wealth management’s pre-tax profits were $768 million, up from the $736 million reported a year ago. For the year, the wealth business earned $3.3 billion in pre-tax profits, a record high. Revenues were $3.75 billion for the quarter, down slightly from the $3.8 billion from a year ago. Net revenues for 2015 were $15.1 billion, another record.

“Wealth management and investment management were solid,” CEO James Gorman said in an analyst call Tuesday. He added that he expects to see further growth in profit margin improvements within wealth—which hit 22 percent this year—noting it could hit 23 to 25 percent going forward when retention deals from the Smith Barney deal start to expire in January 2019.

The firm would also like to see higher loan rates among wealth clients to help with boosting margins. Currently only 1.9 percent of wealth management clients have a mortgage loan with Morgan Stanley, Gorman said.

Gorman also took the opportunity Tuesday to extend his thanks and best wishes to exiting head of wealth management, Greg Fleming, while adding that incoming co-heads Shelley O'Connor and Andy Saperstein have the experience needed to move the business forward. "Our bench in wealth management is particularly strong," Gorman said.

Overall, Morgan Stanley took in $908 million, $0.39 a share, in profits for the fourth quarter compared to the loss of $1.6 billion reported a year ago. This beat analysts’ estimates by $0.10, according to Seeking Alpha. But revenues dropped in the fourth quarter to $7.74 billion from the $7.76 billion reported a year ago. When excluding accounting adjustments, revenue was $7.86 billion, beating analysts’ estimates by $310 million.

Here are the highlights:

  • Total client assets at the end of the fourth quarter were $1.99 trillion, up 3 percent from the third quarter, but down 2 percent from a year prior.
  • Client assets in fee-based accounts were $795 billion, up 3 percent from the third quarter and up 1 percent from a year ago. Fee-based asset flows were $11.4 billion.
  • Asset management fee revenues were $2.1 billion, essentially flat from a year ago. The firm said this was a result of the impact of lower markets offset by positive flows.
  • Morgan Stanley ended the year with 15,889 advisors, adding 82 new employees during the final quarter. However, year-over-year, the firm’s advisor force shrunk by 1 percent from the 16,076 advisors reported with the firm at the end of 2014.
  • Revenue per advisor was $947,000, which was an increase from the $922,000 reported during the third quarter. Average advisor assets were up as well, with the firm reporting assets of about $125 million per advisor.
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