Morgan Stanley (MS - Analyst Report) is aiming at achieving a pre-tax profit margin ranging from 20–22% in its wealth management unit. Alongside, the company is focused on restructuring its commodities business.
The company expects to achieve this target by 2015. It also anticipates margins to increase to 23% or above, given the stock prices and rise in interest rates over the upcoming years.
Previously, Morgan Stanley had set a pretax profit margin target of 20%, owing to its plans to acquire Citigroup, Inc.’s (C - Analyst Report) Smith Barney brokerage business. However, it had a tussle with Citigroup over the valuation of the brokerage business. This resulted in a delay in the merger, which further elevated costs.
Moreover, the sluggish economic growth and unfavorable market conditions adversely affected the company. These factors prompted Morgan Stanley to lower its pre-tax profit targets to the mid-teens.
Morgan Stanley achieved pretax profit margin of 17% in the first quarter of 2013 as well as in the fourth quarter of 2012. This was higher than its targeted pretax profit margin of 15%.
Morgan Stanley’s wealth management unit also reported solid quarterly results in 2013, reflecting its strong financial position. The wealth management unit’s first-quarter 2013 pretax income from continuing operations was $597 million, up 48.1% from $403 million in the year-ago quarter. Moreover, first-quarter 2013 net revenue was $3.5 billion, improving 5.4% from $3.2 billion in the year-ago quarter, reflecting higher asset management fees.
At present, Morgan Stanley’s wealth management unit has 16,284 financial advisers. Moreover, it has $1.79 trillion in client assets as of Mar 31, 2013. Additionally, the wealth management unit accounted for approximately half of the bank’s net revenue in 2012.
These positives are collectively expected to facilitate the company’s wealth management unit to achieve its targeted pre-tax profit margins.
Additionally, Morgan Stanley plans to improve its commodities business amid stringent regulations and slow cyclical period for trading revenues. Moreover, the company targets to improve its fixed-income business. It aims at achieving a 10% return on its equity in the business.
Morgan Stanley currently carries a Zacks Rank #3 (Hold). Some better performing stocks include Investment Technology Group Inc. and Ladenburg Thalmann Financial Services Inc. (LTS - Snapshot Report), which carry a Zacks Rank #1 (Strong Buy).