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Morgan Stanley CEO James Gorman Copyright Andrew Burton, Getty Images
Morgan Stanley CEO James Gorman

Profits Down at Morgan Stanley Wealth Management for Fourth Quarter

With the firm coming in below its goals, Morgan Stanley CEO James Gorman blames volatility and costs of doing business as factors for lower revenue and profit in fourth quarter.

Choppy markets and heightened compensation costs hindered Morgan Stanley Wealth Management's revenue in the fourth quarter. But executives assured analysts and investors that the end of 2018 was not indicative of the business unit going forward.

Morgan Stanley Wealth Management reported revenue of $4.14 billion in the fourth quarter, down 6 percent sequentially and 6 percent from a year ago. It was also less profitable. The unit reported a pretax margin of 24.4 percent in the fourth quarter, well below its goal, according to the bank.

Considering the entire year, wealth management performed well overall even as the bank continued to invest in the business. It's also keeping its eyes open for acquisitions in 2019.

Still, annual performance in 2018 was on target. Wealth management reported record revenue of $17.24 billion last year, up 2 percent from 2017. The pretax margin for all of 2018 was 26.2 percent, up from 25.5 percent in 2017 and just in the 26-28 percent range expected for the year, Morgan Stanley Chairman and CEO James Gorman said during Thursday's earnings presentation. 

Bank of America's Global Wealth and Investment Management, or GWIM, group's pretax margin eclipsed 29 percent for the fourth quarter and finished at 28.3 percent for the year, up from 26.8 percent in 2017.

“Regarding our wealth management objective, in constructive markets, a wealth management pretax margin of 28 percent is not a limit. Our margin will be a function of the market and the choices we make on when and how to invest for growth," Gorman said. "That said, it doesn't serve us well to focus only on margin; we are very focused on absolute [profit before taxes] growth.”

Gorman also noted that the unit continues to expand banking and lending offerings to wealth management clients, improve wallet share and is open to acquisitions going forward.

“These types of additions could enable us to pursue new client segments through alternative channels or accelerate our growth in our core channel,” he said.

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