Morgan Stanley, a leading global financial services firm, has revealed a 14% decline in profits during the second quarter. However, the company’s wealth management unit managed to deliver record net revenue, making it a saving grace for the overall performance, contributing more than half of the quarterly profits.
Wealth management net revenue witnessed an impressive 16% year-over-year increase, reaching $6.7 billion. The unit’s net income also rose by 10% to $1.3 billion. Consequently, Morgan Stanley reported a net income of $2.2 billion for the period.
Despite the decline in profits, the company’s stock experienced a boost of around 6% by midday on Tuesday. Shares were being traded at approximately $91, still below their 52-week high of $100.99.
Wealth Management: A Steady Revenue Generator
Morgan Stanley’s wealth management business has consistently provided stable and predictable revenue and earnings, even during periods of turbulence in the investment banking sector. This trend was evident during the second quarter when investment bank advisory revenue at Morgan Stanley fell by 24% to $455 million, reflecting decreased deal activity across the industry.
CEO James Gorman’s Emphasis on Wealth Management
Under the leadership of CEO James Gorman, Morgan Stanley has diligently emphasized wealth management. The company’s acquisition of Smith Barney a decade ago paved the way for thousands of financial advisors to join its ranks. Furthermore, its strategic acquisition of E*Trade in 2020 positioned Morgan Stanley as a prominent player in the online brokerage and robo-advisory space. As a result, Morgan Stanley has become a formidable force in gathering assets.
Impressive Growth in Net New Assets
Morgan Stanley reported net new assets of $90 billion for the second quarter, despite tax withdrawals. This brings the total net new assets for the year thus far to an impressive $200 billion, placing the company in a league with only a few comparable players.
Comparison to Charles Schwab
For comparison, Charles Schwab reported $52 billion in core net new assets and over $180 billion for the year so far.
Client Assets and Channels
Morgan Stanley concluded the second quarter with client assets amounting to $4.9 trillion, indicating a year-over-year increase of 15%. The majority of these assets, $3.7 trillion, were in the company’s advisor-led channel, representing a growth of 10%. Additionally, self-directed assets experienced a significant surge of 34% to reach $1.1 trillion.
CEO James Gorman’s Optimism
During Morgan Stanley’s earnings call on Tuesday morning, CEO James Gorman expressed his confidence in the consistent growth of net new assets in the wealth management division, emphasizing the company’s scale, expanded channels, and the diverse range of clients they serve.
In conclusion, although Morgan Stanley faced a decline in profits during the second quarter, its wealth management unit played a crucial role in mitigating the impact and delivering record net revenue. With its focus on wealth management and strategic acquisitions, Morgan Stanley continues to cement its position as a leader in the financial services industry.
