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Morgan Stanley Emphasizing on FICC & Wealth Management
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Morgan Stanley’s (MS - Free Report) Chief Executive James Gorman disclosed at an investor conference that the company is targeting $4 billion in annual revenue from its fixed-income, currencies and commodities (FICC) unit despite downsizing of the unit in recent years.
The quarterly revenue goal of around $1 billion seems difficult given the industry wide weakness in the FICC business. However, Gorman at the bank's U.S. Financials Conference in New York said that Morgan Stanley is witnessing growth in bond trading revenues despite a lower headcount.
Last year, Morgan Stanley announced its plan to slash nearly 25% workforce at its fixed income division, including 470 traders and salespeople. Currently, the Wall Street giant projects to save $100 million by deploying 1,250 support staff to lower-cost locations.
Notably, Morgan Stanley reported a 42% drop in bond trading during the third quarter of 2015 (its worst performance since the 2008 financial crisis). Though fixed income results were strong in the first half of 2015, the third-quarter slump more than offset this positive.
Though the bank has managed to earn $4 billion in annual revenue in each of the last two years, majority of that revenue was generated in the first quarter. However, the first quarter of 2016 fell short of the trend. The bank witnessed more than 50% year-over-year decline in FICC revenue in the first quarter of 2016.
However, according to Gorman, weakness seen in the first quarter of 2016 started to reverse by the end of February. This indicates that the company may see improvement in trading revenue in the second quarter of 2016.
This depicts optimism for Wall Street, which has been facing revenue challenges in fixed-income business amid stringent regulations, declining liquidity and maintenance of higher capital against risky assets.
In the wake of muted profits, several banks have reduced staff in this business. While Morgan Stanley has been very aggressive in axing jobs and slashing the capital allocated to fixed income operations, banks like JPMorgan Chase & Co. (JPM - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) have been bidding their time by holding on to most of their fixed-income operations despite cutting costs.
Simultaneously, Morgan Stanley is focusing on stable areas such as wealth management as wealthy clients usually generate steady revenues as fees are based on a percentage of assets under management rather than transactions. Also, new regulations designed to limit riskier activities have hit investment banking and trading businesses harder than wealth management and private banking, inclining banks toward wealth management.
At the Reuters Wealth Management Summit, Morgan Stanley’s wealth management unit stated its target to focus on high net worth clients with wealth management co-head Shelley O’Connor saying, “We are very interested in capturing more wallet from clients where we don’t have the entire wallet, with additional services we will provide.”
Other major banks like JPMorgan and Bank of America Corp. (BAC - Free Report) are also taking efforts to grow their wealth management businesses.
Morgan Stanley’s attempts to expand its wealth management team and shift focus on the same will help improve revenue generation as wealth management contributes to a major part of the bank’s profits. Also, if the company succeeds in achieving its $4 billion yearly FICC revenue target, it will give a further boost to the company’s top-line growth.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
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Morgan Stanley Emphasizing on FICC & Wealth Management
Morgan Stanley’s (MS - Free Report) Chief Executive James Gorman disclosed at an investor conference that the company is targeting $4 billion in annual revenue from its fixed-income, currencies and commodities (FICC) unit despite downsizing of the unit in recent years.
The quarterly revenue goal of around $1 billion seems difficult given the industry wide weakness in the FICC business. However, Gorman at the bank's U.S. Financials Conference in New York said that Morgan Stanley is witnessing growth in bond trading revenues despite a lower headcount.
Last year, Morgan Stanley announced its plan to slash nearly 25% workforce at its fixed income division, including 470 traders and salespeople. Currently, the Wall Street giant projects to save $100 million by deploying 1,250 support staff to lower-cost locations.
Notably, Morgan Stanley reported a 42% drop in bond trading during the third quarter of 2015 (its worst performance since the 2008 financial crisis). Though fixed income results were strong in the first half of 2015, the third-quarter slump more than offset this positive.
Though the bank has managed to earn $4 billion in annual revenue in each of the last two years, majority of that revenue was generated in the first quarter. However, the first quarter of 2016 fell short of the trend. The bank witnessed more than 50% year-over-year decline in FICC revenue in the first quarter of 2016.
However, according to Gorman, weakness seen in the first quarter of 2016 started to reverse by the end of February. This indicates that the company may see improvement in trading revenue in the second quarter of 2016.
This depicts optimism for Wall Street, which has been facing revenue challenges in fixed-income business amid stringent regulations, declining liquidity and maintenance of higher capital against risky assets.
In the wake of muted profits, several banks have reduced staff in this business. While Morgan Stanley has been very aggressive in axing jobs and slashing the capital allocated to fixed income operations, banks like JPMorgan Chase & Co. (JPM - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) have been bidding their time by holding on to most of their fixed-income operations despite cutting costs.
Simultaneously, Morgan Stanley is focusing on stable areas such as wealth management as wealthy clients usually generate steady revenues as fees are based on a percentage of assets under management rather than transactions. Also, new regulations designed to limit riskier activities have hit investment banking and trading businesses harder than wealth management and private banking, inclining banks toward wealth management.
At the Reuters Wealth Management Summit, Morgan Stanley’s wealth management unit stated its target to focus on high net worth clients with wealth management co-head Shelley O’Connor saying, “We are very interested in capturing more wallet from clients where we don’t have the entire wallet, with additional services we will provide.”
Other major banks like JPMorgan and Bank of America Corp. (BAC - Free Report) are also taking efforts to grow their wealth management businesses.
Morgan Stanley’s attempts to expand its wealth management team and shift focus on the same will help improve revenue generation as wealth management contributes to a major part of the bank’s profits. Also, if the company succeeds in achieving its $4 billion yearly FICC revenue target, it will give a further boost to the company’s top-line growth.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>