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Morgan Stanley Tops Q1 Estimates; Wealth Unit Boosts Profits

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Morgan Stanley (MS) beat estimates and reported first-quarter net income of $2.4 billion, or $1.18 a share vs. $1.5 billion, or $0.74 a share, a year earlier. Net revenues were $9.9 billion compared with $9.0 billion a year ago

Excluding certain adjustments, net revenues for the current quarter were $9.8 billion compared with $8.9 billion a year ago, while net income was $2.3 billion, or $1.14 a share, compared with $1.4 billion, or $0.70 a share a year ago.

Compensation costs, though, grew to $4.5 billion vs. $4.3 billion a year ago, while noncompensation expenses increased to $2.5 billion from $2.3 billion. Within Morgan Stanley’s wealth unit, both compensation and other costs were “relatively unchanged” from a year ago, according to the firm; they were $2.2 billion and $754 million, respectively.

“This was our strongest quarter in many years with improved performance across most areas of the firm,” said Chairman and CEO James Gorman, in a statement. “It reflects our ongoing strategy to build platforms for growth while maintaining a prudent risk profile and disciplined expense management.”

Wealth Management

The Wealth Management unit reported net revenues were $3.8 billion, up 1% from the prior quarter and 6% from the earlier quarter. Net income improved 27% from the earlier period to $535 million; this represents a drop of 71% from last year, however, reflecting an unusual income-tax benefit in Q1’14.

Pretax profits for the operations rose to 22% from 19% last quarter and last year, as compensations and benefits declined to 58% of net revenues from 60% in the prior and year-ago periods.

The number of advisors with the firm stands at 15,915, down from 16,076 in Q4’14 and 16,426 in Q1’14. The average level of fees and commissions per rep, though, has improved to $959,000 vs. $944,000 in the earlier period and $878,000 in the year-ago quarter.

Client assets total $2.05 trillion, up from $2.03 trillion last quarter and $1.94 trillion a year ago, with fee-based assets representing 39% of AUM. Fee-based flows were $13.3 billion in Q1’15 compared with $20.8 billion in Q4’14 and $19.9 billion in Q1’14.

On a per-rep basis, assets were $129 million in Q1’15 vs. $126 million in Q4’14 and $118 million in Q1’14.

Last week, Bank of America-Merrill Lynch (BAC) said it had 14,183 advisors with average production of $1.04 million; it noted that veteran FA productivity is roughly $1.4 million and that its thundering herd has 50% or more of client assets in a fee-based relationship.

— Check out Best Full-Service Investment Firms Ranked by Investors: J.D. Power — 2015 on ThinkAdvisor.