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In tough quarter, Morgan Stanley fares better than competitors

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Profits at Morgan Stanley Wealth Management fell in the second quarter — but not as dramatically as it did at its wirehouse competitors.

Net income slid 10% year-over-year to $853 million at Morgan Stanley. Wells Fargo and Bank of America, which owns Merrill Lynch, reported declines at their wealth management businesses of 70% and 42%, respectively.

Transactional income and advisory flows buoyed Morgan Stanley’s wealth management business in the second quarter, the firm said in its July 16 second-quarter earnings report.

Profits from trading and other transactions soared by 48% year-over-year in the second quarter to $1 billion. Fee-based asset flows reached $11.1 billion, and client assets rose 4% to $2.6 trillion.

“We saw clients continue to consolidate assets with their advisors,” CEO James Gorman said in a call with analysts.

Credit loss provisions display another area of difference between Gorman’s firm and its competitors. Wells Fargo’s wealth unit set aside $257 million, which the bank said was “driven by current and forecasted economic conditions due to the COVID-19 pandemic.” Overall, Wells Fargo increased its credit loss reserve by $8.4 billion, a reflection of the very different natures of Wells Fargo and Morgan Stanley’s business mix. Morgan reported $23 million as a provision for credit losses in wealth management for the period ending June 30.

“Overall there were not many positive data points to hang your hat on,” according to analysts. Advisor headcount, net interest income and assets were down.
July 14

Still, Gorman noted it’s been a challenging year given the rate environment, economic upheaval and coronavirus pandemic. Ninety-percent of Morgan Stanley’s employees are working from home, according to the CEO. Net interest income for wealth management, typically a growth area for many firms in recent years, was flat. CFO Jonathan Pruzan told analysts that the firm anticipates the amount will be driven lower in 2020.

That said, Gorman pointed to the strengths of the business, namely its technology, brand and positioning within the marketplace. The wirehouse is also expected to close on its pending acquisition of E-Trade for $13 billion. The deal will boost Morgan Stanley’s presence in the workplace benefits arena and give advisors access to potentially millions of new clients.

Morgan Stanley’s overall profit soared 50% year-over-year to approximately $3 billion due to a nearly $2.8 billion revenue jump in the firm’s other main business, Institutional Securities.

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