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Morgan Stanley's (MS) Inorganic Expansion Aids Amid High Costs
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Morgan Stanley (MS - Free Report) has been continuously making efforts through strategic expansion initiatives to focus on businesses that are less capital-market dependent. However, persistently rising expenses and the uncertain performance of capital markets are concerns.
Morgan Stanley’s strategic buyouts, which aim to increase dependence on reliable revenue sources, are commendable. Driven by these efforts, its Wealth Management ("WM") and Investment Management ("IM") segments’ aggregate contribution to net revenues jumped to almost 55% in 2022 from 26% in 2010.
However, the difficult operating backdrop in the near term is expected to hamper growth in WM and IM segments to an extent. The trend is likely to improve once the operating environment becomes more favorable. We project both segments' contribution (in aggregate) to the top line to be more than 57.5% in 2023.
Morgan Stanley’s partnership with Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) is expected to keep supporting profitability. This July, the companies announced plans to deepen their 15-year alliance by merging certain operations within their Japanese brokerage joint ventures. The new strategic alliance will see combined Japanese equity research, sales and execution services for institutional clients at Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities.
Also, their equity underwriting business will be rearranged between the two brokerage units. The implementation of this expanded alliance is scheduled for the first half of 2024, subject to regulatory approval. These efforts will further solidify the company’s position in Japan’s market.
Following the 2023 stress test results, MS increased its quarterly dividend by 10% to 85 cents per share and reauthorized a new multi-year share repurchase program of up to $20 billion, beginning in the third quarter of 2023. The company is expected to be able to continue with efficient capital deployments, given its solid liquidity position and earnings strength.
Likewise, after clearing this year's stress test, JPMorgan Chase & Co. (JPM - Free Report) announced plans to increase its quarterly dividend by 5% to $1.05 per share. JPM also plans to continue with its previously announced share repurchase program worth $12 billion for 2023.
However, Morgan Stanley has witnessed a continuous rise in expenses. Though expenses declined in 2022, it witnessed a three-year (2019-2022) CAGR of 9.3%. The uptrend continued in the first half of 2023. Going forward, expenses are expected to remain elevated, given the steady increase in revenues and inflationary pressure, as well as the company’s investments in franchise and inorganic growth efforts. Our estimates for total non-interest expenses suggest an increase of 4.4% this year.
The performance of Morgan Stanley's Institutional Securities ("IS") segment, constituting the trading and investment banking businesses, depends on the performance of the capital markets. The future performance of the segment remains uncertain as the current global economic and geopolitical environment continues to be influenced by elevated inflation, higher rates, worsening macroeconomic outlook and volatility across the global financial markets.
Though Morgan Stanley sees signs of growing M&A and underwriting pipelines, the financial impact is expected in the second half of 2023 and 2024. We anticipate the IS segment's revenues to decline 5.1% in 2023.
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Morgan Stanley's (MS) Inorganic Expansion Aids Amid High Costs
Morgan Stanley (MS - Free Report) has been continuously making efforts through strategic expansion initiatives to focus on businesses that are less capital-market dependent. However, persistently rising expenses and the uncertain performance of capital markets are concerns.
Morgan Stanley’s strategic buyouts, which aim to increase dependence on reliable revenue sources, are commendable. Driven by these efforts, its Wealth Management ("WM") and Investment Management ("IM") segments’ aggregate contribution to net revenues jumped to almost 55% in 2022 from 26% in 2010.
However, the difficult operating backdrop in the near term is expected to hamper growth in WM and IM segments to an extent. The trend is likely to improve once the operating environment becomes more favorable. We project both segments' contribution (in aggregate) to the top line to be more than 57.5% in 2023.
Morgan Stanley’s partnership with Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) is expected to keep supporting profitability. This July, the companies announced plans to deepen their 15-year alliance by merging certain operations within their Japanese brokerage joint ventures. The new strategic alliance will see combined Japanese equity research, sales and execution services for institutional clients at Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities.
Also, their equity underwriting business will be rearranged between the two brokerage units. The implementation of this expanded alliance is scheduled for the first half of 2024, subject to regulatory approval. These efforts will further solidify the company’s position in Japan’s market.
Following the 2023 stress test results, MS increased its quarterly dividend by 10% to 85 cents per share and reauthorized a new multi-year share repurchase program of up to $20 billion, beginning in the third quarter of 2023. The company is expected to be able to continue with efficient capital deployments, given its solid liquidity position and earnings strength.
Likewise, after clearing this year's stress test, JPMorgan Chase & Co. (JPM - Free Report) announced plans to increase its quarterly dividend by 5% to $1.05 per share. JPM also plans to continue with its previously announced share repurchase program worth $12 billion for 2023.
However, Morgan Stanley has witnessed a continuous rise in expenses. Though expenses declined in 2022, it witnessed a three-year (2019-2022) CAGR of 9.3%. The uptrend continued in the first half of 2023. Going forward, expenses are expected to remain elevated, given the steady increase in revenues and inflationary pressure, as well as the company’s investments in franchise and inorganic growth efforts. Our estimates for total non-interest expenses suggest an increase of 4.4% this year.
The performance of Morgan Stanley's Institutional Securities ("IS") segment, constituting the trading and investment banking businesses, depends on the performance of the capital markets. The future performance of the segment remains uncertain as the current global economic and geopolitical environment continues to be influenced by elevated inflation, higher rates, worsening macroeconomic outlook and volatility across the global financial markets.
Though Morgan Stanley sees signs of growing M&A and underwriting pipelines, the financial impact is expected in the second half of 2023 and 2024. We anticipate the IS segment's revenues to decline 5.1% in 2023.