Morgan Stanley (US)

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Morgan Stanley remains one of the big six US financial institutions, now specialising in investment banking and wealth management. Despite turmoil in the world's financial markets between 2000 and 2002 it 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 Spring 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. A reliance on the investment market created a new crisis for the bank in September 2008 as a result of the worldwide credit squeeze. However, Morgan Stanley moved quickly to shore up its resources in a strategic alliance with Mitsubishi UFJ of Japan. Performance has steadily improved sinced then, resulting in near-record performance in 2015. Since then, though, the slowdown in the global investment banking business has created a fresh set of concerns.

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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.

Adbrands Weekly Update 20th Jul 2017: Investors had been expecting a weak set of results from the big US banks, with predictions of a sharp slowdown in performance as the initial "Trump Bump" lifting the markets fizzled out during 2Q. In fact, that wasn't the case at all, as a long-awaited surge in consumer and commercial lending, and higher short-term interest rates, offset declines in non-equity investment trading. JP Morgan Chase led the charge with record quarterly profits of over $7bn, up 13% against the year ago period, while revenues topped $26.4bn, well above expectations. Citigroup continued its positive streak with a 2% lift in revenues to $17.9bn as a result of what it called "broad-based" growth in loans across regions and products. Net income slipped 3% as a result of the pullback in currency, stocks and bonds trading but was still better than had been feared at $3.9bn. Wells Fargo continued to put the sales practises scandal behind it with better than expected earnings of $5.8bn, the first increase for almost two years. However revenues were slightly weaker than predicted at $22.2bn. Bank of America delivered a 10% increase in net income to $5.3bn on revenues up 7% to $22.8bn; both figures were higher than consensus expectations. Investment and wealth specialist Morgan Stanley also beat expectations in all its divisions, with revenues of $9.5bn and net income of $1.8bn. The biggest disappointment was Goldman Sachs, the bank most exposed to fixed income and currency trading, and with the lowest consumer and commercial exposure. It reported a second consecutive weak quarter, with fixed income trading revenues plunging by a shock 40%, while its commodities trading unit suffered its worst quarter for at least 17 years. Traditional rival Morgan Stanley - which has long languished in Goldman's shadow - outpaced its competitor for the second straight quarter. Those metrics overshadowed what were otherwise better than expected revenues and net income from Goldman, prompting a sharp sell-off of its shares and renewed concern over the famed investment bank's strategy.

Adbrands Weekly Update 20th Apr 2017: Most US banks continued to enjoy a strong boost from soaring post-election markets, aided by weak comps from the year ago quarter. JP Morgan Chase and Citigroup both reported a 17% jump in profits for 1Q, well ahead of expectations. Investment trading and modest recent upticks in lending rates both contributed to growth. JP Morgan's revenues rose 6% and Citi's by almost 3%, also both ahead of consensus forecasts. Bank of America did even better, with profit soaring by 40% on a 7% lift in revenues, while Morgan Stanley enjoyed a spectacular near-71% jump in profits and a 25% surge in revenues. However, there are always losers as well as winners. News from Wells Fargo, still struggling to repair its reputation after the sales practises scandal, was less positive. Revenues dipped slightly and profits were flat, though still above expectations. The big surprise was Goldman Sachs, whose focus on investment banking should have guaranteed strong gains. In fact, results came in well below analysts' expectations, even if they were up strongly against a dismal year-ago quarter. Unlike rival banks, Goldman's revenues from bond and equity trading actually fell year-on-year. "We didn't navigate the quarter well," said newly appointed CFO Martin Chavez.

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Free for all users | see full profile for current activities: The current group is the result of the merger in 1997 of financial services and brokerage company Dean Witter with investment banker Morgan Stanley. The latter's roots lie in the Great American Depression of the 1930s. In order to avoid a repeat of the catastrophic Wall Street crash of 1929 which virtually destroyed America's financial infrastructure, the government passed the Glass Steagall Banking Act of 1933 which prevented 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.

Within a year the new company had virtually cornered the market, handling almost a quarter of all the country's public stock offerings, especially the biggest issues by the likes of General Motors or General Electric. Later the company moved into brokerage and began to establish itself as a global investment bank during the 1970s with the launch of international offices. Also that decade it was the first investment bank to establish a separate department in its New York office to specialize in mergers and acquisitions. In 1986 the company underwrote its own IPO, becoming publicly listed for the first time. In 1996, keen to diversify its offering further, the group acquired Van Kampen American Capital, a fast growing mutual fund and investment trust manager.

An even more substantial deal followed one year later, in the merger with Dean Witter Discover & Co. A former salesman, Dean Witter set up his brokerage firm in 1924 in San Francisco, and it expanded rapidly during the 1930s and 1940s through the acquisition of other companies. Witter died in 1969, by which time the company had more than 80 offices. It went public in 1972, and by the end of that decade, following the takeover of rival Reynolds & Co, it was the country's #2 brokerage behind Merrill Lynch and the only one with offices in all 50 US States as well as Washington DC. In 1981 Dean Witter & Co was acquired by retail giant Sears Roebuck as part of an ill-conceived diversification into other areas. Four years later it became the motor for the launch of the Discover credit card, marketed primarily to Sears Roebuck clients. However Sears' retail business began to decline, and the group started spinning off non-core assets to improve performance. In 1993, Dean Witter Discover was spun off to Sears shareholders. 

In 1997 Morgan Stanley and Dean Witter merged to form Morgan Stanley Dean Witter & Co, a global leader in securities, asset management and credit services under the management of Philip Purcell of Dean Witter. A year later the enlarged company was responsible for what was then the biggest ever IPO in US history for Dupont's spinoff of Conoco. The group continued to strengthen its portfolio with acquisition of Spain's leading financial services firm AB Asesores, US wealth management firm Graystone Partners and other businesses around the world. As the financial boom of the late 1990s came to a head, Morgan Stanley Dean Witter reported record net income of almost $5.5bn. However the decline which followed immediately afterwards severely dented performance, and the firm was buffeted by a series of problems over the following few years. In September 2001 the company's headquarters in the New York World Trade Center were destroyed by terrorist attack. Remarkably, all but six of almost 4,000 staff based in the World Trade Center escaped unharmed. The group name was shortened to Morgan Stanley in 2002.

In the wave of litigation that surged through the industry following the Enron and Worldcom financial scandals, Morgan Stanley was forced to deal with a number of lawsuits. In late 2003, for example, the group agreed to pay $50m to settle charges that its brokers gave preferential treatment to certain mutual funds in return for higher commissions, and in some cases encouraged ordinary investors to buy those mutual fund shares even though they knew that other shares would have provided better returns. The group was also successfully sued by LVMH, who claimed that a leading analyst at the bank had deliberately and unfairly denigrated LVMH's performance in her published research in order to inflate rival Gucci Group, which was a major client of Morgan Stanley. The bank was ordered in 2004 to pay €30m in compensation and a further considerable sum to be decided in damages. Morgan Stanley appealed against the verdict, and it was overturned in 2006, although a separate claim for "moral and material" damages to LVMH is still making its way through the courts. Also in 2004, the bank agreed to pay $54m to resolve a US-based class action suit alleging it discriminated against female employees in awarding promotions and pay increases. 

In a public dispute unusual within the investment banking industry, eight former executives and shareholders of Morgan Stanley, including a former chairman and former president, sent a letter to the group's board in March 2005 voicing their dissatisfaction with chairman & CEO Philip Purcell. In response, the board requested Purcell to put in place a succession plan for his own eventual replacement. But the resulting plan caused a rift to burst open within the group's senior management ranks. This began with Purcell's dismissal of president & COO Stephan Newhouse, and the appointment of strategy advisor Stephen Crawford and Zoe Cruz, former head of fixed income, as co-presidents. That announcement led to the abrupt departure of two other senior executives, Vikram Pandit, president of institutional securities, and John Havens, head of institutional equity. The departure of Pandit, in particular, long regarded as a potential future head of the firm, stirred further dissatisfaction among Morgan Stanley's shareholders already concerned about the group's lacklustre financial performance and strategic direction since its merger with Dean Witter. (Pandit was subsequently named as the new CEO of Citigroup).

As other senior managers also departed the group, the internal conflict quickly became characterized as a battle between factions from the two companies combined in the Morgan Stanley-Dean Witter merger. Purcell and his supporters came almost uniformly from the Dean Witter side of the business; while those ousted or opposing were to a man from the old Morgan Stanley group. Two senior further resignations came in April, the group's vice chairman Joseph Perella and head of worldwide investment banking Terry Meguid. Despite this turmoil, Morgan Stanley's board confirmed their support of Purcell in May and rejected calls for a full break-up of the group.

A few days later, however, the group was ordered to pay $1.45bn in compensation and punitive damages to financier Ronald Perelman. A Florida court agreed that the bank had deliberately misled him regarding the financial health of its client Sunbeam, which acquired a business from Perelman in 1998 for a payment in its own shares, but went bankrupt shortly afterwards, making those shares valueless. The judgment increased the pressure on Philip Purcell, since the CEO had earlier blocked an out-of-court settlement proposed by Perelman which would have cost only $20m instead of the court-ruled $1.45bn. A few weeks later, Purcell agreed to resign with a payoff worth around $44m, in addition to over $62m already owed to him in deferred compensation and pension benefits. (In fact, the Perelman verdict, which contributed to Purcell's departure, was later overturned on appeal). Purcell was replaced in July 2005 by John Mack, former head of Morgan Stanley prior to the merger with Dean Witter. Stephen Crawford, one of the two joint presidents whose promotions in March 2005 sparked off the group's management battle, also resigned, with a payoff worth $32m. 

Mack, nicknamed Mack the Knife because of a reputation for cost-cutting, promptly began a review of all Morgan Stanley departments with the task of reducing costs while also restoring the group's reputation and tempting back the wealth of banking talent which had deserted or been ousted from the company during the first six months of the year. In November, he shook up the group's investment banking division by sacking around 24 senior departmental managing directors in order to make room for younger talent or new hires, and to promote greater productivity. After months of negotiation, the bank also agreed departure bonuses totalling more than $34m to Stephan Newhouse, Vikram Pandit and John Havens, the three senior executives who left the bank at the start of Purcell's purge. Zoe Cruz, whose appointment as group co-president in 2005 led to the group's management turmoil, survived the subsequent ousting of Philip Purcell and his supporters, but was finally forced out at the end of 2007 in the wake of the bank's sub-prime losses. 

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