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

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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