Morgan Stanley wealth unit suffers outflows

By Helen Kearney

NEW YORK (BestGrowthStock) – Morgan Stanley (MS.N: ) (Read more about the money market today. ) said on Wednesday its wealth management clients withdrew assets during the second quarter, dealing a setback to the firm’s plans to revive and expand the brokerage giant.

The wealth management division, which includes a 51 percent stake in the Morgan Stanley Smith Barney brokerage joint venture, had a net $5.5 billion in outflows of client assets during the quarter. By contrast, clients added $9.3 billion of net new money during the first quarter.

Outflows were even more pronounced in the United States, where clients pulled out $7.9 billion, offset by inflows of $2.4 billion in overseas offices.

“It was a tough environment for retail, especially post- flash crash,” Ruth Porat, Morgan Stanley’s chief financial officer told Reuters.

Following the steep market drop in May, including the May 6 “flash crash” that sent stocks reeling nearly 1,000 points, clients grew nervous and pulled back from the market, Porat said.

The erosion of assets throws a wrench into goals set by Morgan Stanley Chief Executive James Gorman, who earlier this year said the wealth division wanted to increase client assets by $20 billion this year.

Porat now says that achieving this goal was “very much market dependent.”

Morgan Stanley had total client assets of $1.5 trillion at the end of June, down 6 percent from the first quarter.

Overall, the division posted profit of $110 million, an 11 percent increase from the first quarter. Net revenues were little changed during the quarter at $3.1 billion.

Year-ago comparisons are less meaningful, since Morgan Stanley acquired control of Smith Barney from Citigroup (C.N: ) on June 1 last year.

“Wealth management was a big driver (for Morgan Stanley’s overall performance). Its results were in line with last quarter and that’s good in the weak market environment of the second quarter,” said Timothy Ghriskey, chief investment officer of Solaris Asset Management.

The pretax profit margin fell to 7 percent from 9 percent during the first quarter. Gorman had told analysts he wants that measure of performance to reach 20 percent next year.

“This is very much a scale business, which hurts us on the downside but provides operating leverage on the upside,” said Porat.

Morgan Stanley’s ranks of advisers fell by 53 to 18,087 during the quarter. Average revenue per adviser also fell slightly, to $679,000 from $685,000 in the first quarter.

The firm closed down 24 brokerage branches globally during the quarter as it seeks to combine Morgan Stanley and Smith Barney. It now has 881 branches.

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(Reporting by Helen Kearney; Editing by Derek Caney)

Morgan Stanley wealth unit suffers outflows