Morgan Stanley, which reported a drop in its fourth-quarter net income, has outlined aggressive plans to boost its wealth-management results—namely a profit margin target of 22% to 25% by year-end 2015.
In the fourth quarter, the company had net revenues of $7.8 billion vs. $7 billion a year ago. The wealth management unit produced $3.73 billion in revenue in the quarter, up from $3.33 billion a year earlier.
Net income overall fell to $133 million, or $0.07 per share, from $568 million, or $0.29, in the year-ago quarter. Excluding one-time items, such as $1.2 billion in funds set aside for potential legal expenses, the bank earned $0.50 per share, beating analysts’ estimates.
“Our fourth-quarter results demonstrated the consistency embedded in our business model, as revenues increased year-over-year in all three of our business segments,” said Chairman & CEO James Gorman, in a statement. “We look forward to further progress on our strategic goals as we move into 2014 with strength and momentum.”
Morgan Stanley’s wealth management results for the latest period included a pre-tax margin of 19%, or 20% excluding a charge. (Rival Bank of America-Merrill Lynch’s wealth-management unit had a profit margin of 26.6% in the fourth quarter.)
Morgan Stanley has had to fund costly IT and other projects to integrate the Smith Barney franchise. It also had to buy Citigroup’s share of the venture.
The unit’s 2013 margin was 18% vs. 10% in 2011 and 7% in 2009. Gorman sees the unit improving its results via cost discipline and revenue growth.
Wealth management should benefit from growing deposits and net interest income. Plus, the bank plans to boost lending to clients via securities-based credit lines, for instance, and mortgage loans and home-equity products.
The wealth management unit ended the year with client assets of $1.9 trillion. Fee-based assets, 37%, were nearly $700 billion, while fee-based asset flows were close to $52 billion for the year.
Its advisors have average client assets of $116 million, and average annualized revenues per advisor of $905,000 vs. $848,000 in Q3’13 and $104,000 in Q4’12. Morgan Stanley says it has 16,456 advisors—up 104 from a year ago but down 61 from the third quarter.
Bank of America says its fourth-quarter 2013 profits more than tripled, rising to $3.44 billion, or $0.29 per share, from $732 million, or $0.03, a year earlier. Its full-year net income more than doubled to $11.4 billion.
Revenue improved 14% to $22.3 billion, excluding accounting charges. “We still have not approached the true earnings potential of Bank of America,” CEO Brian Moynihan said in a call with equity analysts.
The bank says that losses in its mortgage unit were $1.1 billion in Q4’13 vs. $3.7 billion Q4’12. It made $11.6 billion in home loans in the most recent period, down close to 50% from the prior quarter. Plus, legal expenses jumped to $2.3 billion in the fourth quarter from $916 million in the year-ago period.
The number of advisors in the Global Wealth and Investment Management unit, which includes Merrill Lynch, continues to shrink, though the reps’ average fees and commissions are growing. BofA had 15,316 financial advisors as of Dec. 31, vs. 16, 611 a year ago and 15,624 in the prior quarter.
When advisors working on the consumer and business banking operations are excluded, the number of BofA stands at 13,771 vs. 14,915 at the end of 2012 and 14,039 as of Sept. 30. (BofA also has about 2,000 US Trust wealth professionals.)
The 13,771 traditional advisors had yearly production of $1.005 million in 2013, up from $902,000 in 2012. For Q4’13, average fees and commissions were $1.039 million vs. $1 million in Q3’13.
The wealth-management group had revenue of $4.5 billion in Q4’13, a 7% increase from the year-ago period. Its pretax margin was 26.6%. For the full year, revenue was $17.8 billion, and the pretax margin was 26.4%, up nearly 11% from the prior quarter and close to 6% from the year-ago quarter.
Asset management fees were $1.8 billion in Q4’13, a year-over-year increase of 15%. Long-term asset flows were $9.4 billion for Q4 and $48 billion for the full year.