Morgan Stanley Wealth Earnings Up, but Merrill Stays Ahead in Q2

Despite Gorman’s push, the Morgan unit still has room for improvement on some fronts compared to its main rival, Merrill

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

Morgan Stanley (MS) beat second-quarter estimates on Thursday, reporting total sales of $8.6 billion and net income from continuing operations of $1.9 billion, or $0.94 per share, vs. $1.0 billion, or $0.43 per share, a year ago. (It notes that last year’s EPS included “a negative adjustment” of about $151 million, or $0.08 per share, related to the purchase of a final stake in the Morgan Stanley Smith Barney joint venture.)

As for wealth management, the wirehouse’s pre-tax profit came in at 21%, a milestone for the unit, but still behind that of rival Bank of America-Merrill Lynch (BAC), which reported a pre-tax profit on Wednesday of 25% for the second quarter – its sixth consecutive period of 25%-plus results.

“Our quarterly results demonstrated solid performance, despite a muted operating environment,” said Morgan's Chairman and CEO James Gorman, in a statement. “We are seeing momentum across our businesses, with particular strength in Investment Banking, Equity Sales & Trading and Wealth Management – where profit margins hit 21% for the first time since the founding of the [joint venture] and assets entrusted to us by clients reached $2 trillion.”

Still, the unit has room to catch up when it comes to other measures, as a deeper look at the Q2 numbers reveals.

Morgan Stanley’s wealth unit had pre-tax income of $767 million on net revenues of $3.7 billion. BofA’s group reported pre-tax income of $1.15 billion on net revenues of $4.56 billion; Merrill’s sales represented $3.80 billion or about 83% of the broader group’s results, which includes the operations of U.S. Trust.

Morgan Stanley has 16,316 advisors who produce an average of about $908,000 per rep in yearly fees and commissions.

BofA-Merrill has a total of 15,560 reps, with about 13,845 working under the Merrill Lynch brand. Their average productivity is $1.06 million per rep per year; experienced reps produce $1.34 million, the company says.

In terms of client assets, Morgan Stanley’s wealth unit has a total of $2 trillion in total AUM vs. $2 trillion at Merrill Lynch; BofA-Merrill (including U.S. Trust), though, has nearly $2.5 trillion in total client assets.

Net asset flows in Q2, however, were marginally better at Morgan Stanley, $12.5 billion, than at rival BofA-Merrill, $12 billion. Both units saw a slowdown in flows from the prior quarter. 

-- Related on ThinkAdvisor: 12 Best & Worst Broker-Dealers: Q1 Earnings, 2014

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