‘Choppy Year’ Expected for Wirehouses, Other BDs in 2020

The large financial companies that own the wirehouse broker-dealers — Bank of America, Morgan Stanley, UBS and Wells Fargo — and other Wall Street giants, like JPMorgan and Bank of New York Mellon, could see “a choppy year” for their fundamentals in 2020, according to a report by Keefe, Bruyette & Woods.

Overall, the KBW team sees earnings growth of 6.9% next year, “driven mostly by share repurchase.” But it also sees some economic risks on the horizon, muted loan growth and lower interest rates — which should pressure net interest income growth.

Still, the group expects the large firms “to eke out modest revenue growth, on average.” The next 12 months, though, are seen as “a transitional year as we wait for new catalysts to emerge longer term,” say Brian Kleinhanzl; Michael C. Brown, CFA; and Matthew Gruseke. 

Bank of America, which owns Merrill Lynch, should see higher earnings in 2020 thanks to its net interest income results, but they will be partially offset by higher expenses, according to KBW. This should also be the case for JPMorgan next year. 

Morgan Stanley is predicted to see higher earnings on net interest income, as is Wells Fargo next year. Wells, though, might see its results hurt by weaker non-interest income.

Wealth Management

Looking specifically at Morgan Stanley’s wealth management revenues, the KBW analysts see the unit growing sales about 1.5% in 2019 to $17.48 billion and expanding 2.5% in 2020 to $17.91 billion.

The wealth unit’s pretax profit margin could hit 27.7% in 2019, up from 26.2% in 2018. In 2020, the analysts predict it will stay at 27.7%.

Bank of New York Mellon’s asset and wealth management fees should stay roughly flat over the next 12 months at roughly $3.33 billion, they say.