Morgan Stanley wealth adds assets

By Helen Kearney

NEW YORK (BestGrowthStock) – Morgan Stanley, rebounding from a disappointing second quarter in wealth management, added more financial advisers and client assets in the third quarter though profit and revenue remained flat in a tough trading environment.

The wealth management division, which includes a majority stake in the Morgan Stanley Smith Barney brokerage joint venture, added $5 billion in client assets during the quarter, with the majority coming from its overseas offices. This largely reverses the $5.5 billion in withdrawals the unit suffered during the second quarter.

The unit now oversees $1.6 trillion of client assets, up 5 percent from $1.5 trillion a year earlier. This maintains Morgan Stanley’s lead as the largest U.S. wealth manager by assets, though Merrill Lynch is gaining ground.

Merrill Lynch on Monday reported its client assets totaled $1.52 trillion at the end of the third quarter. Wells Fargo & Co’s retail brokerage unit reported on Tuesday it had $1.1 trillion of client assets.

Morgan Stanley Chief Executive James Gorman earlier this year said he expected the wealth business to bring in $20 billion of new client assets, but second-quarter outflows put a dent in those plans. So far this year the unit has brought in $8.8 billion of new client assets.

In its first comparable year-on-year results following the formation of the Morgan Stanley Smith Barney in June 2009, Morgan Stanley’s wealth businesses posted a net profit of $188 million in the third quarter, unchanged from a year earlier. Morgan Stanley retained $144 million as its share of the profit.

“It’s not a major contribution to the Morgan Stanley empire,” said Alois Pirker, research director at Boston-based consultants Aite Group. “But it’s going in the right direction. We just need to see a couple more quarters of them keeping assets and advisers.”

The unit reported $83 million in costs related to the integration of Citigroup’s Smith Barney business into the joint venture during the quarter.

Net revenues of $3.1 billion were up just 1 percent. Higher interest revenues were offset by a decline in commissions as clients stayed out of the markets.

Coincidentally, Bank of America Corp’s Merrill Lynch also reported revenues of $3.1 billion for the quarter, unchanged from a year ago.

UNUSUAL ENVIRONMENT

Banks often view their wealth management divisions as a more stable source of revenue when institutional businesses suffer. However, Morgan Stanley’s wealth unit could do little to offset a net loss of $91 million in the overall company for the third quarter.

“When we look at the trading environment we are in, it is an unusual environment,” Ruth Porat, Morgan Stanley’s chief financial officer, told Reuters on Wednesday.

Still, CEO Gorman told analysts on a conference call that retail investor activity had bottomed out during the first half of the third quarter and was now picking up.

“Global wealth management progress will never be in a straight line,” Gorman added. Yet the wealth unit, he said, produced “steady revenues in a challenging environment.”

Morgan Stanley’s wealth businesses only added a net 32 advisers during the quarter, despite an aggressive recruiting campaign, and now has 18,119 advisers. On a related front, Morgan Stanley says its private banking expansion effort has enjoyed some success, adding 139 bankers this year to offer loans and mortgages to wealthy clients.

Merrill Lynch boasted a more successful recruiting effort during the third quarter, bringing on almost 200 new advisers. Still, Merrill maintains a lower headcount than Morgan Stanley with 15,340 advisers.

At Morgan Stanley, each adviser generated fees and commissions at an average annual rate of $686,000 in the third quarter, up 4 percent from a year earlier. This closely watched measure of productivity still lags behind Merrill Lynch, whose advisers generate an average of $850,000 in annual revenue.

The Morgan Stanley wealth unit closed 14 branches during the quarter as it works to consolidate Morgan Stanley and Smith Barney. It now has 867 branches, down from 930 when the joint venture began.

(Reporting by Helen Kearney; editing by John Wallace)

Morgan Stanley wealth adds assets