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Morgan Stanley CEO Ted Pick

Net New Asset Growth Pushes Morgan Stanley to $7T in Client Money

Morgan Stanley's wealth unit generated $6.88 billion in revenue in the first quarter.

(Bloomberg) -- Morgan Stanley’s traders delivered first-quarter revenue that exceeded expectations as its wealth management juggernaut also got back on track — both handing a key win for its new leader Ted Pick.

Revenue from the trading business came in at $5.33 billion, cruising past analyst estimates and following the blowout earnings from Goldman Sachs Group Inc. traders. 

The wealth unit generated $6.88 billion in revenue, higher than analysts’ expectations. Net new assets in the division, a key metric tracked by Morgan Stanley watchers, were $95 billion, higher than the previous two quarters combined and in excess of what the bank needs to meet the target it has sought to grow the business.

Pick, who took the helm in January, is confronting the challenge of convincing investors he can advance the growth pace set by his predecessor, revive fortunes at the investment bank he oversaw and accelerate the expansion of its wealth-management behemoth. While the money-management business has grown steadily, executives are eager to capitalize on a reopening of capital markets that could spell more deals, trades and capital-raising business.

The bank’s stock has been the worst performer among the biggest US banks so far this year after outpacing rivals through much of the previous decade. Earnings for the quarter totaled $3.4 billion on $15.1 billion in revenue.

“As a result of strong net new asset growth, the firm has reached $7 trillion of client assets across wealth and investment management,” Pick said in a statement. 

The company’s revenue increased by more than 4% even as expense growth was capped at just over 2%. Return on equity climbed to 14.5%.

The bank’s shares were up about 3.7% to $90.21 at 8:58 a.m. in early New York trading. Morgan Stanley’s stock is down 6.7% so far this year, bucking gains across the banking sector especially among its biggest peers.

The stock took a dive last week after a report in the Wall Street Journal that a cadre of US regulators are scrutinizing the firm’s efforts to prevent potential money laundering by wealthy clients. Investors have also been analyzing its ability to meet its ambitious target to attract new assets into its wealth unit and deliver promising pre-tax margins of as much as 30%.

“It was an excellent quarter all around,” Oppenheimer analyst Chris Kotowski wrote in a note. “However, we would expect that last week’s news reports of regulatory investigations into MS’s AML processes may be an overhang on the earnings call Q&A.”

Read more: Morgan Stanley’s Ted Pick Will Succeed James Gorman as CEO

Morgan Stanley’s fixed-income trading business posted $2.49 billion in revenue, compared with estimates of $2.33 billion. In equities, revenue totaled $2.84 billion. In that business, the New York-based firm has lost the crown to Goldman Sachs Group Inc. whose equities haul totaled $3.31 billion in the same period.

Fees from advising on deals came in at $461 million, compared with estimates of $510 million. Equity-underwriting revenue rose to $430 million as the return of public listings and secondary offerings raised banker hopes for a reopening of those markets.

Despite advisory revenue falling behind its chief rivals, Morgan Stanley Chief Financial Officer Sharon Yeshaya pointed to the bank’s prominent standing in recently announced deals. 

“Backlogs are building and we’re seeing sponsor activity pick up,” she said. “We’re in a great position.”

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