In every market there are opportunities, that is a wonderful thing to remember. In markets such as we see those with cash or assess to credit have many choices including bulking up or gaining size. One such company is Morgan Stanley. For generations, Morgan Stanley was a Wall Street bank which catered to corporate clients and did some wealth business. That was a good business, but Chief Executive James Gorman wanted to ensure there is steady income from global wealth management.
In an article by Niket Nishant and Matt Scuffham of Reuters, Morgan Stanley agreed to buy Eaton Vance Corp for $7 billion in a cash and stock deal. Eaton Vance shareholders will receive $28.25 a share and 0.5833 Morgan Stanley shares for each share they hold. They will also receive a one time $4.25 dividend paid by Eaton Vance before the deal closes. It is expected to close in 2nd quarter of 2021.
With the merger, Morgan Stanley’s wealth and investment management businesses which account for 40 to 50% of the bank’s revenue. Adding Eaton Vance increases assets under administration (AUM) from $665 billion to $1.2 trillion and will boost the business’s annual revenue by about 1/3.
Barclays analyst Jason Goldberg said Morgan Stanley will help distribute funds to the retail investor since Eaton Vance is the top US distributor of individual separate accounts. CEO Gorman has a reputation of acquiring growth and finding efficiencies to bolster profits. When Mr. Gorman acquired Smith Barney the profit margin went from the single digits to 25 to 30% margins. The last acquisition was E*Trade.
Linking to dividend paying stocks, the wealth management business is expected to come to grow and Morgan Stanley is a very good position to enjoy profits from it. When the banks collapsed in 2008, Morgan Stanley has been a good position to hold and given the size of AUM and fees from that group, it should remain a good position.
There are more questions than answers, till the next time – to raising questions.