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Morgan Stanley proves it’s more than just a wealth manager

When Morgan Stanley Chief Executive James Gorman revealed plans to allocate more resources to asset and wealth management and deemphasize the firm’s once powerful trading business, many in the industry rolled their eyes. His decision is looking better and better each quarter, not only because of the gains made in money management but also through the efficiencies seen in the bank’s other businesses. Those who remain at Morgan Stanley's pared down investment bank are enjoying the spoils of an impressive quarter.

Happy days for traders (who remain)

Total trading revenue for Morgan Stanley didn’t touch that of rivals, but no one expected it to considering wealth and asset management now make up roughly half the firm’s business. But traders who remain at Morgan Stanley had a banner quarter.

Overall trading revenue increase 13% year-over-year to $2.7 billion on an adjusted basis. Fixed income traders fared particularly well, with revenue topping out at $997 million, up 19% from a year earlier.

That of course pales in comparison to the likes of Goldman Sachs and Citigroup, which booked FICC revenues of $1.98 billion and $2.98 billion, respectively, but it’s a positive sign that the bank saw a sizable percentage increase after several quarters of declines. Fixed income revenue was up just 2% at J.P. Morgan and 5% at Citigroup, for example.

Equities traders also did work, notching a 4.3% uptick in revenue to $1.78 billion, which beat out the likes of Bank of America ($1.03 billion) and Goldman Sachs ($1.46 billion).

And it appears Morgan Stanley took care of its traders this quarter. Compensation within the bank’s institutional securities group, which includes trading and investment banking, increased 10% year-over-year and 3% compared to last quarter.

Compensation across the entire bank was up more than 6%, in line with increases in revenue.

Investment bankers, too

Advisory revenue came in at $392 million, up from $275 million a year ago, while equity underwriting nearly doubled to $464 million, aided substantially by the Alibaba IPO.

Bloomberg analysts estimated earlier in the week that Morgan Stanley investment bankers were in line for the biggest bonus increases across Wall Street, and it appears that may be true. Through nine months, Morgan Stanley ranks second in M&A.

Wealth managers still getting paid

There’s been a lot of talk about Morgan Stanley cutting pay for its thriving wealth management unit. So far, there’s no sign of that. The average annualized revenue per broker was $932,000 during the quarter, up 10% year-over year. Compensation expenses for the quarter were $2.2 billion, up exactly 10%. Brokers are still getting the same size piece of the pie, at least for now.

Layoffs look to be subsiding

Morgan Stanley appears to have put the finishing touches on its downsizing plans. The firm employed 55,977 people at the end of the quarter, down just around 150 people and 200 on the year. And that’s with its wealth management staff decreasing by more than 300 over the past year – something the bank likely didn’t plan on. Poaching of financial advisors has been rampant this year.

So the big takeaway is that Morgan Stanley actually added staffers across its other units, albeit a very small number.

AUTHORBeecher Tuttle US Editor

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