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Morgan Stanley chief executive James Gorman predicted the Wall Street bank would eventually triple its assets under management to $20 trillion, though an aggressive push into wealth management failed to offset weak trading 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 wealth management to make the company less dependent on volatile investment banking and trading.
Despite this boost, Morgan Stanley’s earnings continue to be subject to market volatility, with a sharp decline in fixed income trading revenues weighing on Morgan Stanley’s earnings in the second quarter. Net income fell 13 percent year over year to $2.2 billion, in line with analysts’ estimates.
However, Gorman said Tuesday that the bank’s wealth management business has become a “pretty unstoppable force” that, along with its wealth management division, will meet its goal of $10 trillion in assets under management and eventually reach $20 trillion.
“I know people will think I’m crazy and I know my term is up and I’m allowed to do something like this. But if you had reached 5 percent [compounding] Over 14 years that’s $20 trillion,” Gorman told analysts.
“That seems like a long way. But I started this job 14 years ago and we had way, way less than the $6.3 trillion we have today. So it’s possible.”
Morgan Stanley shares are up more than 6 percent in morning trade in New York.
If Gorman steps down as chief executive officer, Morgan Stanley is expected to select his successor from a trio of internal candidates: Ted Pick, Andy Saperstein and Dan Simkowitz, who will 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 percent year-on-year and above estimates of $6.5 billion. The company raised $89.5 billion in net new money, well above the $60.3 billion expected by analysts.
UBS analysts described the inflow of wealth as “very strong”.
Pick-led Morgan Stanley’s institutional securities division, which includes investment banking and trading, reported net sales of $5.65 billion, down 8 percent year-on-year and slightly ahead of analyst expectations of 5, 5 billion US dollars.
Investment banking revenue was flat at just under $1.1 billion, beating estimates of $1 billion and ending a more than year-long streak of falling revenue amid a slump in business execution. Fixed-income trading fell 31 percent to $1.7 billion, down from 12 months ago, when central bank rate hikes boosted business.
Equity trading revenues declined 14 percent year-over-year to $2.5 billion. Gorman told analysts that US debt ceiling deliberations continued to create “unnecessary” uncertainty in markets in April and May.
Rival Bank of America on Tuesday reported a 7 percent rise in investment fees, while its adjusted sales and trading revenue rose 10 percent year-on-year.
JPMorgan Chase reported last week that investment banking fees fell 6 percent, while Citigroup saw fees fall 31 percent. JPMorgan’s trading revenue fell 10 percent and Citi’s fell 13 percent.
Goldman Sachs reports its earnings on Wednesday, with analysts braced for a weak quarter.