Morgan Stanley boosts wealth management revenue in first quarter

But the wealth management unit was clearly a bright spot for the firm in the first quarter, with Morgan Stanley's overall earnings falling 19% from the year-earlier period.

Morgan Stanley’s giant wealth management franchise reported an 11.9% increase in net revenue for the first quarter, to $6.6 billion, compared to $5.9 billion for the same period a year earlier.

The past 3½ months have been the most chaotic for Wall Street since the 2008 credit crisis, with regional banks under extreme pressure and some clients pulling deposits.

Morgan Stanley has moved to capitalize on the perceived weakness of its competitor First Republic Bank, whose stock price has collapsed 89% since March 1 and was trading at $13.04 per share around noon on Wednesday.

Earlier this month, a First Republic team of New York City-based financial advisors led by Adam Zipper and Joseph Duarte jumped to Morgan Stanley. The team works with $10.8 billion in total client assets.

But like its larger Wall Street competitors, Morgan Stanley’s financial results have been buoyed by the steady rise in interest rates over the past 15 months, even as broker-dealers were weathering the storm of 2022 that saw the S&P 500 stock index fall 18%.

The fed funds effective rate has risen from essentially zero in January 2022 to 4.65% last month. This means broker-dealers are profiting on the cash held in client accounts, margin loans used to buy more securities and banking activity in general.

“The [wealth management] business delivered a pre-tax margin of 26.1%,” Morgan Stanley reported. “Results reflect higher net interest income versus prior year primarily driven by higher interest rates, even as clients continue to redeploy sweep deposits.”

Morgan Stanley has a public goal of bringing in $1 trillion in new client assets every three years. To that end, it reeled in $110 billion in net new assets during the first three months of the year, an impressive amount in the wealth management industry but down 19.5% from the same quarter last year, when the company reported $136.7 billion in net new assets.

Wealth management was clearly a bright spot at Morgan Stanley in the first quarter; overall, the firm’s earnings fell 19% to $2.98 billion from a year earlier, reflecting declines in investment banking and trading.

In a call with analysts Wednesday morning, chairman and CEO James Gorman said that Wall Street wasn’t facing a banking crisis like 2008’s, but that didn’t mean there might not be more trouble for some banks in the coming months.

Gorman also said that the company would “no doubt” do more acquisitions of wealth management and asset management firms in the future but gave no details.

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