Revenues Rise Sharply At Morgan Stanley's Wealth Arm

Tom Burroughes

19 April 2021

The wealth management arm of Morgan Stanley late last week reported a sharp rise in revenue to $6 billion in the first three months of this year, up from $4.1 billion a year ago, widening the group’s pre-tax margins. At the same time, the firm said that overall it suffered a $911 million hit linked to the woes of stricken prime brokerage client Archegos.

Throughout the whole of Morgan Stanley, it logged $15.7 billion of net revenues in Q1, surging from $9.8 billion a year earlier. Net income was $4.1 billion, more than doubling from $1.7 billion a year earlier, the US firm said in a statement.

Morgan Stanley said that year-on-year comparisons were affected by its purchase of asset management firm Eaton Vance, which was completed at the start of March this year, and the acquisition of E*TRADE, the discount brokerage, which was completed at the end of 2020.

Wealth management total costs rose to $4.364 billion in Q1 from $2.982 billion a year earlier. Both compensation and non-compensation costs rose from a year ago. The rise in compensation costs was driven by rises in the fair value of certain deferred compensation plan referenced investments, higher compensable revenues, and higher compensation caused by the E*TRADE deal.

Wealth management logged a pre-tax margin of 26.9 per cent, or 27.9 per cent when integration-related costs are stripped out. There were net inflows of $105 billion and fee-based flows of $37 billion, it said. The wealth management business had total fee-based client assets of $1.574 trillion.

The firm said that investment management results “reflect strong asset management fees” on assets under management of $1.4 trillion, including the effect of the Eaton Vance deal.

Although it did not refer to the Archegos hedge fund/family office saga by name, Morgan Stanley said problems at Archegos, which missed margin calls and has collapsed, had affected its Q1 investment banking results.

Referring to its equity net revenues in its investment banking arm, Morgan Stanley said: “The current quarter includes a loss of $644 million related to a credit event for a single prime brokerage client, and $267 million of subsequent trading losses through the end of the quarter related to the same event.”