2010 Q4 Earnings: Morgan Stanley’s Net Income Makes Big Jump on Strong Sales

Advisors with Morgan Stanley Smith Barney had $14.1 billion in net new client assets in the fourth quarter

Morgan Stanley reported earnings early Thursday of $867 million, or $0.43 per share, vs. $460 million, or $0.18 a share for the same year-ago period. Net revenues were $7.8 billion for the quarter compared with $6.8 billion last year.

Analysts had expected earnings of $0.35 a share on sales of $7.35 billion.

The brokerage firm’s stock was trading up 3.6% on above-average volume in early afternoon trading Thursday to $28.75.

"Morgan Stanley delivered improved performance across most of our businesses during the fourth quarter, and the strength of our premier client franchise was evidenced by participation in virtually every major transaction that helped raise capital for governments and leading corporations across the globe,” said President and CEO James P. Gorman, in a press release.

Retail Brokerage Results

Morgan Stanley said its global wealth-management unit had net inflows – or net new client assets – in the fourth quarter of 2010 of $14.1 billion vs. outflows of $6.8 billion in the same year-ago period. Inflows in the third quarter of 2010 were $5 billion.

“In global wealth management, the strong performance we delivered in the fourth quarter – and the strong net new asset growth we achieved during 2010 - are the clearest signs yet of the important progress we have made in integrating Morgan Stanley Smith Barney,” said Gorman in the statement.

MSSB now includes 18,043 financial advisors, down 1% from 18, 135 a year ago and off slightly from 18,119 in the third quarter of 2010.

Average revenue (or gross production) per advisor now stands at $742,000, an increase of 7% from $692,000 last year and 6% from $686,000 in the third quarter.

Sales for the unit, which includes investment banking and asset-management operations, rose 8% over last year and 7% over the prior quarter to $3.35 billion. Excluding interest, revenues for global-wealth operations were $3.01 billion.

Total assets for wealth management are $1.67 trillion as of the fourth quarter of 2010, or about $92.5 million per financial advisor, up from about $86 million per advisor a year ago and $88.5 million in the third quarter of 2010.

“Retail firms of all stripes have a renewed sense of optimism and confidence and are scrambling to boost both the numbers and quality of their salesforces,” said executive search consultant Mark Elzweig (left) in a statement.

Still, “The Morgan Stanley Smith Barney combination has been far from seamless,” explained Elzweig. “Morale on the Smith Barney side of the house is still an issue."

(On Jan. 14, Charlie Johnston, the co-president of MSSB and former head of Smith Barney said he would retire at year-end. Greg Fleming, another Merrill Lynch veteran like Gorman, has been tapped as the new head of global wealth management.) 

Net income applicable to Morgan Stanley in the fourth quarter was $166 billion vs. $29 billion a year and $144 billion in the third quarter of 2010. (MSSB is 49% owned by Citigroup.)

The unit’s pre-tax margin rose to 12% from 7% last year and 9% in the prior quarter, as compensation expenses and benefits as a percent of revenue dropped to 59% from 63% last year and 62% in the third quarter.  

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

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