It's hard to sugar-coat the abysmal second-quarter numbers Morgan Stanley reported this morning, but James Gorman, chief executive of the investment bank, did his best.
“Although global economic uncertainty remains a head wind, we are proactively positioning the firm for success. Our businesses showed resilience in key areas during the quarter, and we made progress against strategic goals. Despite muted volumes, investment banking maintained its industry-leading rankings,” Mr. Gorman noted in a press release.
Morgan Stanley's revenue was down 24% compared with the comparable quarter last year, and profits were off more than 50%, excluding a large one-time charge in last year's second quarter. Revenue in the institutional securities and asset management businesses was down 37% and 28%, respectively.
Mr. Gorman noted that the bank's wealth management business raised its pretax profit margin a point despite a 4% drop in revenue versus the comparable quarter last year. “In Global Wealth Management, we increased our pretax margin to 12% in an environment marked by investor caution, and we integrated substantially all of our technology systems, which should bring additional value to our clients,” he indicated.
The firm's brokerage joint venture, Morgan Stanley Smith Barney LLC, recently completed a messy transition to a new technology platform, with several thousand Smith Barney advisers being the last to migrate to the new system this month. Mr. Gorman has targeted a 15% margin for the wealth management business by next year.
The wealth management division may have been a bright spot for Morgan Stanley this quarter, but only relatively so. The business did manage to increase profits by 25% from the comparable quarter last year, thanks largely to a 7% decline in non-interest expenses. Excluding a $53 million after-tax gain from discontinued operations, however, profits were down 3% from last year.
The adviser ranks at MSSB continue to fall. The firm had 16,934 reps at the end of the second quarter, down 6% from last year. Annualized revenue per rep increased 2% to $775,000, but the figure was down 2% from the end of the first quarter.
Total client assets under management of $1.7 trillion were up less than 1% from the comparable quarter last year and down more than 2% from the end of the first quarter. Somewhat surprisingly, given the firm's oft-stated plan to focus on high-net-worth investors, managed assets of investors with less than $1 million were up more than 5% from the first quarter. AUM in the $1-million-plus client segment, on the other hand, was down more than 4%.
Mr. Gorman said on the earnings conference call this morning that the company plans to continue head count reductions across the bank's divisions this year, with a target of 7% fewer employees versus the end of last year. He did not break out staff reductions for the various businesses.
If Mr. Gorman is to reach his 15% pretax profit margin for the wealth management business by next year, the markets will have to cooperate.
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