In Mid January, Morgan Stanley reported its results and the street liked what they saw and heard. In an article by Abhishek Manikandan and Elizabeth Dilts Marshall of Reuters, Morgan Stanley set the bar for expense controls, returns on equity and wealth management profits for the next 2 plus years.
Overall, Morgan Stanley’s profit jumped 46% to $2.09 billion or $1.30 a share up from $1.36 billion or 80 cents a share from a year earlier.
The bank’s net revenue rose 27% to $10.9 billion.
CEO James Gorman has changed the bank to a more diversified one, including a number of years ago buying Smith Barney in order to be in the wealth management business. In an interview on CNBC, Mr. Gorman noted if someone has $30,000 they should be buying ETFs; if someone has $30 million then different strategies are needed. Morgan Stanley has a trillion in assets with clients who have at least $30 million plus.
The result of the above is Morgan Stanley’s wealth business generates about 3 times as much daily revenue as it did 5 years ago.
The metric of cost to revenue at Morgan is an efficiency ratio of 70 to 72% with the ideal to be less than 70%. In 2019, Morgan Stanley’s was 73%.
Morgan Stanley’s goal for Return on Equity (ROE) is 13% to 15% through 2022, and over 15% after 2022. In 2019 the goal was 10 to 13% and ROE came in at 11.7%.
Mr. Gorman wants the wealth unit to generate a pretax profit margin of 28 to 30% over the next few years, which is up from the projected 26 to 28% and 2019 was 27.2%.
Linking to dividend paying stocks, it is hard not to like Morgan Stanley as it changes from a Wall Street trading bank to Wealth Management Trading Bank because of the recurring revenues from the wealth side. Those recurring revenues help ensure every year the bank is going to be profitable and can easily pay dividends and likely increase them. Music to your ears.
There are more questions than answers, till the next time – to raising questions.