Morgan Stanley lifts profitability target as it seeks $10tn in client assets

Bank reports gave update on Wednesday as it reported 10% rise in profits for last three months of 2021

Morgan Stanley lifted a crucial profitability target as the Wall Street company seeks to expand its business beyond investment banking and trading and increase the assets in its wealth management arm to $10 trillion.

The bank gave the update on Wednesday as it reported a 10 per cent rise in profits for the last three months of 2021. It told investors it would aim for a return on tangible common equity (ROTCE), a key measure of profitability, over the “longer term” of at least 20 per cent. This is up from a target of at least 17 per cent previously.

The company delivered an ROTCE of 20 per cent in 2021, which James Gorman, Morgan Stanley’s chief executive, called “an unbelievably good year” as banks across Wall Street benefited from record deal making and elevated trading activity.

“If we were really operating with a permanent 20 per cent-plus ROTCE, the stock would be much higher than it is now,” Mr Gorman said in a call with analysts. “I don’t think you’re gonna find another bank in the world that’s putting out a 20 per cent-plus ROTCE goal.”

By comparison, rival JPMorgan Chase reported a ROTCE of 23 per cent in 2021. It has a “medium-term” ROTCE target for upwards of 17 per cent but warned last week it would probably miss this goal in 2022 and possibly in 2023.

Client assets

Morgan Stanley also wants to lift its client assets, currently $6.5 trillion across wealth and investment management, to $10tn.

The targets reflect the shift under Mr Gorman, chief since 2010, into businesses such as asset and wealth management, bolstered by chunky acquisitions including ETrade and Eaton Vance.

Investors view these areas as more stable and less capital-intensive than Morgan Stanley’s legacy investment banking and stock and bond trading businesses.

Morgan Stanley’s stock was up about 4 per cent in early trading in New York.

In the last three months of 2021, the bank’s investment banking revenues rose 6 per cent year on year to about $2.6 billion, in line with analysts’ forecasts, according to data compiled by FactSet, but a more modest increase than some peers enjoyed during a record deals boom on Wall Street.

Matching forecasts

Morgan Stanley reported total net income of $3.6 billion, up from $3.3 billion a year earlier and matching forecasts. The bank’s overall revenues were $14.5 billion, up from $13.6 billion a year earlier and just shy of the $14.6 billion expected.

Year-on-year comparisons were flattered by the integration of the purchase of Eaton Vance, which was completed in March 2021.

Revenues in wealth management, which contains ETrade, grew 10 per cent to $6.25 billion. In investment management, revenue swelled 59 per cent to $1.7 billion, bolstered by the integration of Eaton Vance.

Pay and benefits, including bonuses, were up 1 per cent year on year in the fourth quarter at $5.5 billion. Annual salary expenses were up 18 per cent at $24.6 billion in 2021, less than the 23 per cent increase in the bank’s net revenue. – Copyright The Financial Times Limited 2022