Morgan Stanley’s wealth management business delivered a resilient profit margin the first three months of 2022 despite market volatility, according to chief executive officer James Gorman.
“Wealth management showcased its resiliency in the quarter,” Gorman said last week during a conference call to discuss the firm’s firm first-quarter results.
The CEO pointed to the unit’s first-quarter profit margin of 27.8%, excluding expenses related to the acquisitions of E*Trade and Eaton Vance.
Including acquisition-related expenses, Morgan Stanley’s wealth management business delivered a pre-tax profit of 26.5%.
“The E*Trade acquisition continues to go very well and given the current path we’re on, a significant portion of the integration will be done by the end of this year,” Gorman said. “By the end of 2022, we expect to no longer separate our integration expenses.”
Earlier this year, Gorman said that Morgan Stanley had set a pre-tax profit margin goal of at least 30% for its wealth management business, as reported. The target is higher than the wealth management pre-tax margin goals of 26% to 30% that Morgan Stanley had previously set for 2021 and 2022, respectively.
“We saw our first rate hike of the year in the first quarter, and with our strong and growing deposit base, this will have a near immediate economic impact to our business and it supports our path to delivering the margins we predicted in excess of 30%,” Gorman said last week.
Morgan Stanley’s wealth management business added $142 billion in net new assets in the first quarter, which included an asset acquisition, according to Gorman.
“Nonetheless, organic growth in our existing business remained very strong,” he said. “In a volatile market, this is very affirming of the model.”
The firm added $75 billion of retirement assets through the asset acquisition of an institutional retirement consultant, according to Morgan Stanley’s chief financial officer Sharon Yeshaya. “We remain a platform of choice,” she said, during the conference call. “This is the second institutional retirement plan to join us in the last nine months.”
Morgan Stanley’s wealth management business had $4.8 trillion in total client assets at the end of the first quarter, down 3% from $4.93 trillion in the prior quarter, but a 13% increase from $4.23 trillion in the same period last year.
Net revenue from Morgan Stanley wealth management was $5.94 billion during the first three months of 2022, down 5% from $6.3 billion in the prior quarter, and flat compared to $5.96 billion in the same period last year.
The wirehouse no longer discloses its wealth advisor headcount. The last time it reported the numbers, at the end of 2020, the firm had 15,950 advisors, up 3% from 2019.
Overall, Morgan Stanley reported net revenue of $14.8 billion in the first quarter, down from $15.7 billion in the same period last year. The firm earned $2.02 a share on profit of $3.7 billion, compared with $2.19 a share on profit of $4.1 billion in the prior year’s quarter.
During the conference call last week, Gorman acknowledged the volatility that has roiled financial markets in recent months.
“Heading into 2022, we anticipated, as everybody did, a more volatile market and, obviously, we saw that in the first quarter,” Gorman said. “The year started with rising inflationary pressures, accelerated expectations for tightening of monetary policy, and most notably and sadly, the invasion of Ukraine — this backdrop inject[ed] significant uncertainty into the market.”
However, apart from the volatility Russia’s invasion of Ukraine created, Gorman said the war has had very limited financial impact on Morgan Stanley.
“A few years ago, we decided to give back our banking license and we significantly scaled back operations in Russia,” Gorman said. “Further, as a result of these actions and the current war, we’re not entering into any new business in the country, and our activities are limited to helping global clients address and close out pre-existing obligations.”
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