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James Gorman, CEO of Morgan Stanley, expected the Wall Street bank to triple its assets under management to $20 trillion, even as a strong push for wealth management failed to offset lackluster business 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 like wealth and asset management in order to make it less reliant on volatile investment banking and trading.
Despite this boost, Morgan Stanley’s earnings remain subject to market volatility, with a sharp decline in fixed income trading yields hitting Morgan Stanley’s earnings in the second quarter. Net income fell 13 percent year-on-year to $2.2 billion, in line with analyst estimates.
However, Gorman said on Tuesday that the bank’s wealth management business has become “a largely unstoppable force” that, along with its asset management division, will hit a target of $10 trillion in assets under management and eventually reach $20 trillion. . .
“I know people are going to call me crazy and I know it’s the end of my term and for me to do this kind of thing. But if I did 5 percent [compounding] Over the course of 14 years, you end up with $20 trillion, Gorman told analysts.
“That seems like a long way to go. But I started this job 14 years ago and we had way less than the $6.3 trillion we have today. So it’s possible.”
Morgan Stanley shares were trading up more than 6 percent in morning trading in New York.
When Gorman steps down as CEO, Morgan Stanley is expected to choose his successor from among three internal candidates, Ted Beck, Andy Saperstein and Dan Simkowitz, each of whom will run one of Morgan Stanley’s three divisions.
The bank’s wealth management unit, which is run by Saperstein, reported revenue of $6.7 billion for the quarter, up 16 percent from a year ago and ahead of estimates of $6.5 billion. The company acquired $89.5 billion in net new assets, ahead of the $60.3 billion that analysts had expected.
UBS analysts called the asset flow “extremely strong”.
Morgan Stanley’s institutional securities division, which is operated by Pick and consists of investment banking and trading, reported $5.65 billion in net revenue, down 8 percent from a year ago and slightly exceeding analyst expectations of $5.5 billion.
Investment banking revenue was flat at just under $1.1 billion, ahead of estimates of $1 billion and ending more than a year of declining revenue amid the dealmaking slump. Fixed income trading fell 31 percent to $1.7 billion, unlike 12 months ago when business was boosted by central banks raising interest rates.
Equity trading revenue fell 14 percent year-over-year at $2.5 billion. Gorman told analysts that deliberations in the US over the debt ceiling created “unnecessary” uncertainty in the markets in April and May.
Rival Bank of America on Tuesday announced a 7 percent increase in investment fees, while its adjusted sales and trading revenue rose 10 percent from a year ago.
JPMorgan Chase reported last week that investment banking fees fell 6 percent, while Citigroup suffered a 31 percent drop in fees. JPMorgan’s business revenue fell 10 percent, while Citi’s revenue fell 13 percent.
Goldman Sachs reported its results on Wednesday as analysts braced for a weak quarter.
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