MS Wealth Management vaults past margin target

MS Wealth Management vaults past margin target
Unit ahead of schedule, records 17% pretax margin in fourth quarter; 'let's not get too wound up.'
MAR 12, 2013
Morgan Stanley chief executive officer James Gorman's plan to build the wealth management arm of the investment bank is well ahead of schedule. Morgan Stanley Wealth Management reported a 17% pre-tax profit margin in the fourth quarter, the company announced today, putting it well ahead of the 15% target Mr. Gorman had laid out for the middle of this year. The pre-tax profit margin for the full calendar year was 13%. Mr. Gorman tried to downplay the fourth-quarter spike, which the firm said was the first full quarter after the integration of Smith Barney was complete. “One quarter is 13 weeks, so let's not get too wound up in precisely where we are,” Mr. Gorman said during the company's fourth-quarter conference call Friday. “Mid-teens by the middle of next year is what we're focused on.” Mr. Gorman originally had set a 20% target when Morgan Stanley acquired a majority stake in Smith Barney from Citigroup Inc. in 2009, but dialed back his expectations recently. “We were criticized for laying out a 20% target," Mr. Gorman said during the call Friday. "But we didn't anticipate a difficult market and a zero percent interest rate.” Morgan Stanley also announced it is speeding up its acquisition of the final 35% stake of Smith Barney, which is now fully integrated into Morgan Stanley Wealth Management. The bank said it expects to acquire the remaining stake this year, pending regulatory approval. The bank noted that by completing the acquisition it will be able to increase its lending to clients. Gregory Fleming, head of the wealth management unit, called the bank's lending operations “one of the biggest areas of growth for us going forward,” at an investor conference in December. The profit margin of the wealth management arm also was helped by the productivity of the existing business. Revenue per global representative jumped 13% year-over-year to $824,000, even though the number of reps declined 4% to 16,780. Client assets per representative also jumped to $106 million, up 14%. Fee-based assets grew 18% to $573 billion.

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