Bank of America Corp. and Morgan Stanley, which have the two biggest wirehouses in the country, last week reported impressive quarterly financial results in their wealth management operations.
The performance by Bank of America Merrill Lynch provided the bank's lone bright spot in the first quarter, with revenue from the unit climbing 7% to $3.68 billion, from $3.44 billion a year earlier.
BofA doesn't report Merrill's earnings separately, but net income in the global wealth management and investment segment, which also includes private bank U.S. Trust, in-creased 31% to $720 million. Merrill Lynch reported a record $1.83 trillion in total client assets under management.
Overall, BofA's first-quarter earnings fell short of analysts' expectations as weakness in consumer banking, mortgage lending and securities trading contributed to an 8.4% drop in revenue to $23.85 billion, versus a year earlier.
Morgan Stanley reported similarly strong growth in its brokerage results, with revenue up 5% to $3.5 billion, from $3.3 billion a year earlier. Net income for the unit rose 33% to $376 million.
“It looks like a turning point for the wealth management businesses at the wirehouses,” said Alois Pirker, research director at consultant Aite Group LLC.
Morgan Stanley's pretax profit margin of 17% surpassed chief executive James Gorman's scaled-back goal of a 15% margin by the middle of next year. He famously set a 20% margin target for the combined operations of Morgan Stanley and Smith Barney shortly after he engineered a merger of the two firms in 2009.
That integration has been bumpy, and the combined businesses never came close to his goal over the past three years.
Mr. Gorman subsequently re-duced his target to 15%.
Despite Morgan Stanley's apparent momentum, he won't be fiddling with the margin targets again.
“I foolishly came out with a 20% margin target three years ago and I admitted my mistake,” Mr. Gorman said last week during an earnings call with analysts. “We then set our target for 15% for the middle of next year and I'm not going to reset it now.”
CRISIS AFTERMATH
Both Merrill and Morgan Stanley show signs of emerging from the long, dark aftermath of the financial crisis.
Although the adviser ranks at both firms have decreased from the year-ago quarter, their productivity has surged. Morgan Stanley ended the quarter with 16,284 advisers — down 3% from a year earlier — but annualized revenue per rep was up 9% to $851,000, from $780,000.
Merrill ended the quarter with 16,084 advisers, a 3.6% drop from a year earlier, but they contributed an average of $971,000 in annualized revenue during the quarter, compared with $891,000 a year earlier, also a 9% increase
The new-asset flows to both companies were particularly impressive, Mr. Pirker said.
Merrill advisers brought in $18.7 billion in new assets, while Morgan Stanley saw $15.3 billion in new-asset flows during the quarter.
“Those are much bigger numbers than we've seen recently,” Mr. Pirker said.
As long as investors don't get unduly spooked by the stock market's pullback, he expects the momentum of the wirehouses to continue.
“I expect the performance will continue for the rest of the year, unless the markets go haywire,” Mr. Pirker said.
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