The trouble with being a broking house such as Morgan Stanley is that you can’t play politics in the same way Citigroup, JPMorgan or Bank of America can. No “Look how many small businesses we’re lending to” or “We modified a million mortgages last year”. Brokers are purely in the game of making rich institutions and individuals richer. Hopefully, along the way the investors will make money too.
Which means performance is everything. And the reality is that Morgan Stanley’s shares have trailed rival broker Goldman Sachs by 70 per cent over the past five years. While the banking index has more than doubled since the nadir in prices in 2008, Morgan Stanley stock has only risen by a fifth. That is not good enough. So 12 months ago a new chief executive, James Gorman, was installed to turn things round.
Full-year results on Thursday highlight how difficult a task this is. Morgan Stanley still has three big problems. The first is sales and trading. Every bank on Wall Street
knows that unless they’re in the top three in the mega-flow businesses such as rates, foreign exchange and commodities they’re wasting their time. Morgan Stanley, therefore, is not the only one frantically trying to get there. And the pie up for grabs is shrinking. Morgan Stanley made $9bn in revenues in fixed income in 2006. This year it made $5bn.
Second, wealth management has to deliver. Full-year operating margins were just 9 per cent, supposedly due to costs related to the integration of Smith Barney. Morgan Stanley must quickly achieve its promise of 20 per cent or questions will be asked about
whether something else is wrong. Finally, the broker seems bloated. Headcount is 45 per cent higher than in 2006 yet net revenues are the same. Mr Gorman has a busy year ahead.
FINANCIAL TIMES
Which means performance is everything. And the reality is that Morgan Stanley’s shares have trailed rival broker Goldman Sachs by 70 per cent over the past five years. While the banking index has more than doubled since the nadir in prices in 2008, Morgan Stanley stock has only risen by a fifth. That is not good enough. So 12 months ago a new chief executive, James Gorman, was installed to turn things round.
Full-year results on Thursday highlight how difficult a task this is. Morgan Stanley still has three big problems. The first is sales and trading. Every bank on Wall Street
knows that unless they’re in the top three in the mega-flow businesses such as rates, foreign exchange and commodities they’re wasting their time. Morgan Stanley, therefore, is not the only one frantically trying to get there. And the pie up for grabs is shrinking. Morgan Stanley made $9bn in revenues in fixed income in 2006. This year it made $5bn.
Second, wealth management has to deliver. Full-year operating margins were just 9 per cent, supposedly due to costs related to the integration of Smith Barney. Morgan Stanley must quickly achieve its promise of 20 per cent or questions will be asked about
whether something else is wrong. Finally, the broker seems bloated. Headcount is 45 per cent higher than in 2006 yet net revenues are the same. Mr Gorman has a busy year ahead.
FINANCIAL TIMES
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