Morgan Stanley is one of the big six US financial institutions, but unlike any of its five main rivals it specialises in just two fields of investment banking and wealth management. (Even traditional rival Goldman Sachs now has a small consumer banking business). Despite turmoil in the world's financial markets between 2000 and 2002 Morgan Stanley kept its poise, balancing its securities and investment management services with more consumer-oriented credit card lending. However long-simmering tensions within the group led to a bitter and damaging management battle in 2005, claiming the jobs of a number of senior officers. The subsequent spin-off of its consumer arm as Discover Financial Services effectively unravelled the often troubled 1997 merger with financial services giant Dean Witter. However, reliance on the investment market created a new crisis for the bank in 2008 as a result of the worldwide credit squeeze. Morgan Stanley moved quickly to shore up its resources in a strategic alliance with Mitsubishi UFJ of Japan, and several weaker units, such as its asset management business, were divested. Performance has steadily improved since then. Key to the recovery has been the creation of what is now one of the world's top three wealth management companies, formed from the acquisition of what was previously Citigroup's Smith Barney subsidiary. In 2019, Morgan Stanley was the #1 bank in completed M&A, global IPOs and global equity. Also that year, the bank made what was then its biggest ever acquisition with a deal to acquire Solium Capital, which manages employee stock plans, for $900m. Almost exactly a year later in 2020, that deal was ecliped by a deal to acquire online stock broker E*Trade for $13bn, followed by fund manager Eaton Vance for $7bn. Bolstered by these additions, Morgan Stanley reported record revenues in 2020 of $48.2bn and best-ever profits of just under $11.0bn. Institutional Securities contributed 54% of revenues (but 64% of profits), Wealth Management 40% and the remaining 8% came from Investment Management. James Gorman is chairman & CEO. Morgan Stanley was created at the height of the Great Depression of the 1930s. To avoid a repeat of the catastrophic Wall Street crash of 1929 which virtually destroyed America's financial infrastructure, the Glass Steagall Banking Act of 1933 prohibited banks from offering both commercial and investment banking services. As a result Henry Morgan, a grandson of the legendary J Pierpoint Morgan, and Harold Stanley resigned from their jobs at JP Morgan & Co and Drexel & Co respectively to form investment banking specialist Morgan Stanley & Co.
Capsule checked 29th July 2021
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Adbrands Daily Update 8th Oct 2020: Just a few days after completing its acquisition of E*Trade, Morgan Stanley announced the purchase of fund manager Eaton Vance for $7bn. That deal will almost double assets under management to $1.2 trillion. It is Morgan Stanley's third big purchase in two years following Solium in 2019 and E*Trade.
Adbrands Daily Update 20th Feb 2020: E*Trade has been rescued from an uncertain future by wealth management and investment banking specialist Morgan Stanley. The latter has agreed to acquire the struggling online broker for $13bn in shares. It is the biggest takeover by any US bank since the 2008 financial crisis. E*Trade will continue to operate under its existing brand within Morgan Stanley's wealth management division, introducing around 5m new retail customers and $360m in assets. It's part of a concerted strategy by Morgan Stanley to widen its coverage to ordinary customers. "We'll take on Schwab. We'll take on Fidelity," said CEO James Gorman. "This isn't about legacy-building; it's about getting [Morgan Stanley] ready for prime time." This new deal follows the acquisition almost exactly a year ago of Solium Capital, which manages employee stock-plans for corporate clients. For E*Trade, the takeover offers an important lifeline. The broker's future had come under serious threat from the expected merger of its two much bigger rivals Schwab and Ameritrade.
Adbrands Daily Update 12th Feb 2019: Morgan Stanley announced its biggest acquisition since 2008 with a deal to acquire Solium Capital, which manages stock plans for corporate employees. Solium's 3,000 corporate clients have over 1m employees between them. Many start-up businesses, especially in the digital field, offer stock options to staff as an incentive. Solium's clients include payment services service Stripe and ecommerce company Instacart. Morgan Stanley is betting that many of those stockholders will end up as millionaires in their own right, and will trade up to become clients of its core wealth management division.
Adbrands Weekly Update 19th Jul 2018: US banks kicked off the reporting season with generally strong results. JP Morgan Chase led the charge as usual, with revenues up 6% to $27.7bn, while net income jumped 18% to $8.3bn, helped by higher interest rates and loan growth (and also of course a lower tax charge). "We see good economic growth, particularly in the US, where consumer and business sentiment is high," said CEO Jamie Dimon. Corporate and investment banking were particularly strong, offsetting declines in mortgages and credit cards. Bank of America took a slight hit on revenues, down very slightly to $22.6bn year-on-year because of a one-off gain in the prior period. Stripping out that exceptional item, comparable revenues were up 3% and net profits soared by 33% to $6.8bn. Citi's results were a little more muted, though revenues rose 2% to $18.5bn. In Citi's case, consumer banking generally fared better than investment banking, though the group's treasury and custody services were the strongest performer overall. Net profit jumped 15% to $4.5bn on the lower tax charge. Wells Fargo is still struggling under the cloud of its customer mistreatment scandals, with revenues down 3% to $21.6bn and an 11% fall in net profit to $5.2bn, despite the lower tax rate. The company said rising interest rates are putting homebuyers off new mortgages. There was much better news from Goldman Sachs, where profits soared 40% to $2.6bn on revenues up 19% to $9.4bn. Goldman also confirmed that Lloyds Blankfein will step down as CEO later this year, and will be succeeded by current president David Solomon. Morgan Stanley also reported a big jump of 39% in profits to $2.4bn - its second highest figure ever after 1Q 2018 - on revenues up 12% to $10.6bn.
Adbrands Weekly Update 18th Apr 2018: American banks enjoyed big profit gains from US tax reforms, as well as generally upbeat business sentiment. Net income at JPMorgan Chase jumped by 35% to an all-time record for the bank of $8.7bn, while Bank of America grew 30% to $6.9bn. However both were beaten in percentage terms by Morgan Stanley whose net earnings jumped by 38% to $2.7bn. Goldman Sachs was the next biggest profit jumper, up 26% to $2.8bn, while Citi was up 13% to $4.6bn. Wells Fargo gained 5% to $5.9bn, but said it might be required to restate those figures at a later date to accommodate a forthcoming $1bn regulatory settlement over mis-sold car insurance and mortgage fees. The lower tax rate alone generated a combined total of $2.9bn in extra profit from the six companies. Yet despite those big gains, investors were generally unimpressed by the lack of any significant growth in lending to businesses and consumers. That was one of the key underlying motivations for Republicans' tax reforms: to encourage borrowing and growth in the wider economy. So far, there's no sign of that, as JPMC finance chief Marianne Lake admitted: "I think we have to recognize that tax reform is in its early stages." As far as revenues were concerned, JPMC remained the clear leader among US banks with 12% growth to $27.9bn, but reigning #2 Wells Fargo slipped back to $21.9bn - it was the only bank to report a year on year decline. That allowed BofA to reclaim second place with $23.1bn. Citi had $18.9bn. Morgan Stanley topped Goldman again with $11.1bn to $10.0bn respectively.
Adbrands Weekly Update 19th Oct 2017: US banks mostly had a great quarter, as consumer and business lending offset generally lacklustre trading and investment results. JPMorgan Chase led the pack as usual with profits up 7% to $6.7bn on revenues up 3% to $26.2bn, well ahead of expectations. That was despite a shock 21% fall in trading revenues. Bank of America too beat expectations, with net profit of $5.6bn on revenues of $21.8bn. Citi delivered profit of $4.1bn on revenues of $18.2bn. Morgan Stanley also beat predictions as a result of strong performance in wealth management. Perhaps surprisingly, even Goldman Sachs - which has minimal exposure to consumer lending - also did well, with revenues ahead of expectations despite the trading downturn and profits exactly as predicted. The big disappointment - again - was Wells Fargo, still struggling with the fallout from its sales practises scandal. Given its business profile, it should have been the bank most likely to benefit from rises in lending, but actually total loans slipped by 1% year-on-year, compared to gains of 2% to 3% at the other lenders; consumer loans alone were down 3%. Revenues slipped back to $21.9bn - lower than analysts had been anticipating and putting the bank at risk of losing its second place position to BofA - while net profits slumped by 19% year-on-year to $4.6bn as a result of a $1bn charge against regulatory investigations.
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