Analyst: MSSB ‘checkmated’ by BofA, UBS
Morgan Stanley's brokerage unit must keep compensation high to retain top financial advisers because Bank of America Corp. and UBS AG are looking to poach employees, an analyst said
Morgan Stanley’s brokerage unit must keep compensation high to retain top financial advisers because Bank of America Corp. and UBS AG are looking to poach employees, an analyst said.
Morgan Stanley chief executive James Gorman can’t cut expenses at the joint venture with Citigroup Inc.’s Smith Barney as fast as he would like because “he’s being checkmated by Sallie Krawcheck and Bob McCann,” Sanford C. Bernstein & Co. Inc. analyst Brad Hintz said last week on Bloomberg Radio.
Ms. Krawcheck leads BofA’s wealth management unit, and Mr. McCann is head of UBS’ U.S. brokerage firm.
“Both of them have bids in the market for his brokers, so if you come in and are heartless on the integration, the retail brokers will raise their hand and hit the bid, and he’ll end up with fewer brokers,” Mr. Hintz said.
Compensation costs at Morgan Stanley’s wealth management unit, which includes Morgan Stanley Smith Barney LLC, came to 62% of revenue last year, down from 65% in 2009. The ratio is 43% in the firm’s investment bank and 41% in its asset management division.
PROFIT GOAL
Investors and analysts have been disappointed by the slowness of the MSSB integration, Mr. Hintz said.
The unit posted a pretax margin of 9% last year, less than half Mr. Gorman’s goal of more than 20%. BofA’s wealth and investment management division, which includes its Merrill Lynch brokerage and U.S. Trust, had a margin of about 15%.
Morgan Stanley paid $2.75 billion in 2009 to gain a controlling stake in the joint venture with Smith Barney, making it the world’s biggest brokerage firm, with 17,800 advisers and $1.72 trillion in client assets at the end of the first quarter. Morgan Stanley has the option to buy the rest of Citigroup’s stake by 2014.
Mr. Gorman placed his former Merrill Lynch colleague Greg Fleming in charge of the brokerage unit this year. Mr. Gorman said in February that the firm is focused on keeping attrition among its top 40% of advisers below 5%.
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