Updated Wednesday, July 23, 2014 as of 5:54 AM ET
- Wirehouses
Morgan Stanley Wealth Management Assets Top $2 Trillion
On Wall Street
Thursday, July 17, 2014
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Morgan Stanley Wealth Management's profits climbed 11% in the second quarter, rising to $471 million from $426 million a year ago. Client assets topped $2 trillion for the first time.

The firm's net income surged 64% year-over-year to $1.9 billion for the second quarter, up from $1.2 billion for the year prior. The growth was driven in part by strong showings in wealth management and institutional securities.

"We are seeing the fruits of Morgan Stanley's efforts to better position the firm," Chief Financial Officer Ruth Porat said during a conference call.

NARROWING THE GAP

Morgan is narrowing the gap between its total client assets and that of wirehouse rival Merrill Lynch, which leads the asset race by about $15 billion. The numbers are closely watched by industry experts to see if there's a continuous gap in growth, according to Aite Group analyst Alois Pirker.

"It's an observation we'll need to make over a couple of years. The two big differences are that Merrill Lynch is bank-owned now and Morgan Stanley is sort of like Merrill Lynch before that acquisition, a pure brokerage firm. Do we see one growing faster than the other? Because maybe we'll conclude that, well, if Merrill Lynch was still independent it'd be growing faster," Pirker said in an interview before Morgan's earnings release.

Globally, Morgan Stanley ranks third by AUM among wealth managers, according to a study by London-based Scorprio Partnership, a research firm. UBS and Merrill Lynch ranked first and second, respectively, but Morgan had the fastest growth in 2013 at 17.5%.

FEES & COMPENSATION

Morgan Stanley Wealth Management's fee-based assets grew 21%, reaching a record $762 billion for the second quarter from $629 billion for the same period a year ago.

Non-interest expenses increased 3%, rising to $2.9 billion from $2.8 billion. Compensation and benefits made up the bulk of those expenses, but increased only 7%. Compensation as a percentage of net revenues rose one percentage point to 59% year-over-year.

CEO James Gorman said recently he wants to reduce the comp-to-revenue ratio to 55%. Gorman could achieve this by continuing to boost revenue, cutting compensation or reducing recruiting expenses.

Annualized revenue per advisor rose 5% to $908,000 for the quarter.

CUTTING EXPENSES

The number of Morgan advisors dropped 110 from last quarter to 16,316. The number of offices also fell to 636. Porat said that since the merger with Smith Barney the firm has been looking at consolidating offices where appropriate.

"As we look at leases coming up, we've looked at whether there is an opportunity to combine offices," she said.

The New York-based company reported that overall non-interest expenses declined 1% year-over-year, falling to $6.6 billion for the second quarter. Institutional securities posted a 104% increase in net income, which rose to $1.3 billion from $654 million, over the same period.

Earnings-per-diluted-share soared 129%, climbing to $0.94 per share from $0.41 per share for the year-ago period.

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