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Morgan Stanley chief executive James Gorman has predicted the Wall Street bank will eventually triple its assets under management to $20 billion, even if an aggressive push in wealth management has failed to offset the lackluster commercial activity in the second quarter.
Gorman, who plans to step down as CEO by the middle of next year, has led Morgan Stanley’s expansion into more stable businesses such as wealth and asset management to make it less dependent of volatile investment banking and trading.
Despite the surge, Morgan Stanley’s earnings remain subject to market fluctuations, with a sharp decline in fixed-income trading revenue weighing on Morgan Stanley’s second-quarter earnings. Net profit fell 13% year-on-year to $2.2 billion, in line with analyst estimates.
Gorman, however, said on Tuesday that the bank’s wealth management business had become “a pretty much unstoppable force” which, along with its asset management division, would hit a target of $10 billion in assets. under management and would eventually reach $20 billion. .
“I know people are going to call me crazy and I know it’s the end of my term and I can do this stuff. But if you made 5 percent [compounding] over 14 years, you end up at $20 billion,” Gorman told analysts.
“It seems like a long way to go. But I started this job 14 years ago and we had much, much less than the $6.3 billion we have today. It is therefore possible. »
Shares of Morgan Stanley were trading up more than 6% in morning trading in New York.
When Gorman steps down as chief executive, Morgan Stanley is expected to choose his successor from a trio of internal candidates, Ted Pick, Andy Saperstein and Dan Simkowitz, who each lead one of Morgan Stanley’s three divisions.
The bank’s wealth management unit, led by Saperstein, reported revenue of $6.7 billion for the quarter, up 16% from a year ago and ahead of estimates for $6.5 billion. The company recorded $89.5 billion in net new assets, well above the $60.3 billion expected by analysts.
UBS analysts called the inflow of assets “very large”.
Morgan Stanley’s institutional securities division, led by Pick and which includes investment banking and trading, reported net revenue of $5.65 billion, down 8% from it a year ago and slightly exceeding analysts’ expectations of $5.5 billion.
Investment banking revenue held steady at just under $1.1 billion, ahead of estimates of $1 billion and ending a more than year-long streak of revenue declines in a slump transactions. Fixed income trading fell 31% to $1.7 billion, unlike 12 months ago when activity was boosted by higher central bank interest rates.
Equity trading revenue was down 14% year-over-year to $2.5 billion. Gorman told analysts that the debt ceiling deliberations in the United States also created “unnecessary” uncertainty in the markets in April and May.
Rival Bank of America announced a 7% increase in investment fees on Tuesday, while its adjusted revenue from sales and transactions rose 10% from a year ago.
JPMorgan Chase announced last week that investment banking fees fell 6%, while Citigroup suffered a 31% drop in fees. JPMorgan’s trading revenue fell 10% and Citi’s fell 13%.
Goldman Sachs reports earnings on Wednesday as analysts brace for a weak quarter.