On the face of it, Morgan Stanley (MS) and MetLife (MET) may not seem to have a lot in common; one is a premier investment that was hit hard by the financial crisis and is still bouncing back, while the other is perhaps the best known life insurance company in the country. Yet under the surface the two firms share the same basic mechanism for earning profits; asset management.
Let me explain. MetLife’s business is all about taking in money from consumers and in return, providing those consumers with a “return” in the form of insurance (the firm is probably best known for life insurance, but it sells many other forms of insurance also). Thus MetLife’s goal is to manage these insurance premiums so as to earn the maximum possible risk adjusted return, and the higher the rate of return the firm earns, the bigger its profits are.
Historically, Morgan Stanley has mainly been an investment bank; a firm wants to float a new bond issue, it comes to Morgan. It wants to issue more equity or do an IPO, talk to Morgan. Want to do an M&A transaction, Morgan can help. Leading up to the financial crisis MS got away from its roots as a pure investment bank and started doing a lot more trading with firm money (as did Goldman Sachs (GS), Bank of America (BAC), JP Morgan (JPM), etc). However in the wake of the financial crisis and MS’ near death experience there as well as the new regulations promulgated under Dodd Frank, Morgan moved heavily into wealth management. The firm bought a major stake in brokerage and wealth management operations in a deal with Citi (C), and since that time wealth management has been becoming a bigger and bigger part of the firm’s core operations. For shareholders in MS, this is probably a good thing; wealth management is a lot more stable business than trading or even investment banking.