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Morgan Stanley chief executive James Gorman predicted the Wall Street bank will eventually triple its assets under management to $20tn, even as an aggressive push into wealth management failed to make up for lacklustre trading activity in the second quarter.
Gorman, who plans to step down as CEO by the middle of next year, has led Morgan Stanley’s expansion into more stable businesses such as wealth and asset management in order to make it less reliant on volatile investment banking and trading.
Despite that push, Morgan Stanley’s earnings remain subject to market swings, with a sharp drop in fixed income trading revenues weighing on Morgan Stanley’s profits in the second quarter. Net income fell 13 per cent year on year to $2.2bn, in line with analysts’ estimates.
Gorman, however, said on Tuesday that the bank’s wealth management business had become “a pretty much unstoppable force” that, together with its asset management division, would make good on a target for $10tn in assets under management and eventually get to $20tn.
“I know people are going to call me crazy and I know it’s the end of my tenure and I get to do this kind of stuff. But if you did 5 per cent [compounding] over 14 years, you end up at $20tn,” Gorman told analysts.
“That seems like a long way out. But I started this job 14 years ago and we had much, much fewer than the $6.3tn we have today. So it’s possible.”
Morgan Stanley shares were trading up more than 6 per cent in morning trading in New York.
When Gorman steps down as chief executive, Morgan Stanley is expected to select his successor from a trio of internal candidates, Ted Pick, Andy Saperstein and Dan Simkowitz, each of whom run one of Morgan Stanley’s three divisions.
The bank’s wealth management unit, run by Saperstein, reported revenues of $6.7bn for the quarter, up 16 per cent from a year ago and ahead of estimates of $6.5bn. The business took in $89.5bn in net new assets, well ahead of the $60.3bn analysts had expected.
UBS analysts described the asset inflow as “very strong”.
Morgan Stanley’s institutional securities division, run by Pick and which comprises investment banking and trading, reported $5.65bn in net revenues, down 8 per cent from a year ago and slightly exceeding analysts’ expectations of $5.5bn.
Investment banking revenues were flat at just under $1.1bn, ahead of estimates of $1bn and ending a run of more than a year of falling revenues amid a dealmaking slump. Fixed income trading fell 31 per cent to $1.7bn, in contrast to 12 months ago when the business was boosted by central banks lifting interest rates.
Equity trading revenues were 14 per cent lower year on year at $2.5bn. Gorman told analysts that deliberations in the US over the debt ceiling had also created “unnecessary” uncertainty in markets in April and May.
Rival Bank of America on Tuesday reported a 7 per cent rise in investment fees, while its adjusted revenue from sales and trading climbed 10 per cent from a year ago.
JPMorgan Chase last week reported that investment banking fees fell 6 per cent, while Citigroup suffered a 31 per cent drop in fees. JPMorgan’s trading revenues were down 10 per cent and Citi’s were 13 per cent lower.
Goldman Sachs reports its results on Wednesday with analysts braced for a weak quarter.
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