Q2 Earnings: Morgan Stanley Tops Estimates, Boosts Wealth Results

Morgan Stanley Smith Barney is ahead of rival Merrill Lynch in FA headcount and average assets but lags in annualized revenue per advisor.

James Gorman, president and CEO of Morgan Stanley.  (Photo: AP) James Gorman, president and CEO of Morgan Stanley. (Photo: AP)

Morgan Stanley reported a net loss of $0.38 per share for the second quarter on Tuesday vs. a gain of $0.80 a year ago. The loss, along with revenue of $9.3 billion vs. $8 billion a year ago, topped analysts’ estimates for the recent period.

Earnings per share for Q2 included a negative adjustment of about $1.7 billion, or $1.02 per share, related to Morgan Stanley’s conversion of preferred stock, held by Mitsubishi UFJ Financial Group, into common stock.

In the global wealth management, continued cuts to the advisor force contributed to improvements in both average revenue (or fees and commissions) per advisor and average assets under management per FA.

The wealth unit had net revenues of $3.5 billion, client assets of $1.7 trillion and 17,638 advisors worldwide. Net new assets for the quarter were $2.9 billion with net flows in fee-based accounts of $9.7 billion.

Wealth management “delivered its highest revenues and FA productivity since the MSSB joint venture was formed and had positive flows, as did asset management,” said President and CEO James Gorman in a press release. “With respect to costs, our re-engineering initiative and additional expense-management efforts underscore our focus to ensure that shareholders benefit from our progress.

Cutting Reps, Raising Results

Net revenues for the global wealth unit were $3.5 billion, up 13% from a year ago and 1% from the previous quarter, “primarily reflecting higher asset-management revenues and gains on securities held for sale,” according to the company.

Morgan Stanley also says that, with the exception of 2Q10, revenues have increased each quarter following the MSSB joint venture’s inception in 2Q09.

Average trailing-12-month FA productivity (or fees and commissions) was $785,000 – up 16% from last year and 2% from the first quarter.

Assets per advisor in the second quarter averaged $97 million, a jump of 17% from last year and unchanged from the previous period.

The firm’s FA headcount of 17,638 was down 440 from the same year-ago period and 162 from March 30, as the brokerage firm continues to “prune underperformers,” it said in a statement.

Positive net new assets were $2.9 billion, representing an $8.4 billion turnaround from 2Q10, when net asset outflows totaled $5.5 billion. The latest quarter’s net inflows, though, were down from the $11.4 billion experienced in the first quarter.

Net new flows into fee-based accounts in Q2 were $9.7 billion vs. $6.3 billion a year ago and $17.8 billion in the previous quarter. Fee-based assets account for 30% of total client assets of $1.7 trillion, and now total $509 billion.

Net income for the unit, after taxes of $138 million and a non-controlling interest allocation to Citigroup of $4 million, was $180 million, topping last year’s results by 64% and down 2% from the first quarter.

The group’s pre-tax margin was 9% in the quarter vs. 7% a year ago and 10% last quarter. The compensation-to-net-revenue ratio for the current quarter was 62% vs 64% in the year-ago period and unchanged from the first quarter.

While Morgan Stanley is now ahead of rival Merrill Lynch in terms of the number of advisors and assets under management, it still has to catch up on annualized revenue per rep. On Tuesday, BofA-Merrill said it had 16,241 advisors with annualized sales per rep of $894,000 and average assets under management of $95 million. 

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