Twice shy? Nope, Gorman ups his margin target for Morgan Stanley brokerage

Apparently, James Gorman is not cowed by a little criticism.
When Mr. Gorman engineered the merger of Morgan Stanley and Smith Barney in 2009, he famously predicted a 20% pretax profit margin for the combined brokerage businesses by 2011. While the company struggled through the very messy integration of the two brokerages, Mr. Gorman has been regularly — and loudly —reminded of his prediction as margins remained woefully short of his target. Morgan’s pretax profit margin was 10% in 2011.
Mr. Gorman, however, is back in the prognostication game, and if he’s a little less bold with the delivery, he’s no less ambitious with the target.
“We are comfortable with revising our overall targets [for the business],” he told an audience Wednesday at the Morgan Stanley 2013 U.S. Financials Conference. “With our Q1 run rate as a starting point and assuming no changes in market levels or interest rates, our margins come out to between 20% and 22% by 2015.”
Morgan Stanley has posted margins of 17% in the last two quarters. If the markets cooperate, Mr. Gorman suggested the firm could do substantially better. “If we were to see a higher interest rate environment and strength in the S&P 500, we can see managing 23%-plus margins,” he said. “I’m not getting any more specific than that. It doesn’t serve anybody any good.”
Mr. Gorman’s presentation on Wednesday highlighted the transformation he has overseen at Morgan Stanley through the acquisition of Smith Barney. With $13 billion in revenues last year, the wealth management and asset management businesses accounted for about half the company’s revenues. In 2006, it was closer to a third.
Last year, Morgan Stanley fixed the price to buy in the remaining 35% of the brokerage joint venture that Citigroup Inc. still owns, and Mr. Gorman said he expected regulatory approval of the deal shortly. He said the company is now in a “post-integration” period.
“We always said these margins would improve post-integration and a lot of people didn’t believe us,” Mr. Gorman said. “We feel comfortable with where we are.”
Morgan Stanley spokeswoman Christine Jockle said Mr. Gorman would make no further comments beyond what he said in his presentation.