Skip to Content
Stock Strategist

Morgan Stanley's Underappreciated Business

Wealth management and banking are the key earnings drivers.

Mentioned: , , , , ,

The key drivers of  Morgan Stanley's (MS) earnings have drastically changed over the past several years. The acquisition of Smith Barney made the wealth management segment's asset management fees and net interest income much more important to the company's earnings growth story than its institutional securities segment's investment banking and trading revenue. Even among U.S.-focused wealth managers, Morgan Stanley has some unique traditional banking dynamics related to deposit growth, asset mix shift, and cross-selling that we believe are underappreciated. Evaluating the health of the company's wealth management business and the trajectory of its bank confirms our view of Morgan Stanley's positive medium-term earnings growth prospects.

We've always seen Morgan Stanley's joint venture with Citigroup's (C) Smith Barney wealth management business in 2009 and eventual full acquisition in 2013 as a strong, proactive move that positioned the company well for new financial institution regulations. This was in contrast to skeptics at the time who focused on the lack of perceived synergies between investment banking and wealth management. Stable, high-return-on-capital wealth management has increased to nearly 50% of Morgan Stanley's net revenue from 25% as a result of the 2009 Smith Barney joint venture.

Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.