“We have the ballast that comes with wealth and asset management, and the speed that comes with the banking, securities, and M&A business…I like that balance. When the economy is recovering, the speed kicks in more. When the economy is suffering, the ballast kicks in more.”
– James Gorman, CEO Morgan Stanley
The most important read of the weekend for investors in financial stocks is Avi Salzman’s Barron’s cover story on the new Morgan Stanley. Salzman posits that Morgan’s makeover may represent what the financial services industry in general is going to look like in the new era. I think he’s right.
In it, we learn that 50 percent of Morgan Stanley’s revenues are coming from wealth management (what they used to refer to as retail brokerage), and 37% of their wealth management assets are in fee-based versus transactional accounts. This is a shift that plays heavily into my Relentless Bid theory.
The firm is also more competitive than ever in IPOs and other areas of banking. What the firm is hardly doing at all anymore is trading fixed income and other securities, thanks to the new regulations and requirements on capital for deposit institutions. We also learn that Morgan Stanley’s biggest profit opportunity is its now-$140 billion customer deposits, which it’s barely done anything with compared to, say JPMorgan or BofA Merrill. The wealth management and asset management units manage assets of about $1.9 trillion, another honeypot of potential fees, charges and securities to be lent out or lent against – pushing loans on clients using their own portfolios as collateral is becoming the wirehouse advisor’s secret weapon these days.
Anyway, Gorman has done a masterful job at combining Smith Barney, the legacy Dean Witter and Morgan Stanley’s own brokerage business into a singular force. What’s happening at Morgan is highly emblematic of the trends we’re seeing everywhere.
Anyone investing in this area of the market needs to read the story immediately.