Morgan Stanley CEO Ted Pick told analysts Wednesday his firm is looking at acquisitions for its wealth management business but that the “bar is super high” for any deal.
Discussing Morgan Stanley’s second-quarter earnings, Pick said “inorganic opportunities” — or possible M&A deals — regularly “come by along the transom.”
“And we are looking at them, of course, but the bar is super high,” he said. “We have a record of integration that is a good one. But we have humility around what it takes to make integrations work.”
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Morgan Stanley’s wealth management business, which reported increases in its assets under management and net revenue, has been built in large part through a series of M&A deals. Those include its purchase in 2019 of the software company Solium Capital, the origin of many of its workplace services for employers and employees, as well as its acquisition in 2020 of the self-directed brokerage service E-Trade.
Pick named no specific businesses Morgan Stanley might consider buying. The firm, he added, is not “looking to make acquisitions just for the sake of it.”
“It has to fit squarely within the strategy to raise, manage and allocate capital for clients,” Pick said.
Morgan Stanley’s big goal: $10 trillion in wealth assets
One pillar of Morgan Stanley’s plans is to raise its asset tally for its wealth and investment management unit to $10 trillion. The firm on Wednesday reported progress on that front.
Its asset tally for wealth and investment management came in at $8.2 trillion, up from $7.7 trillion at the end of the first quarter. Of the new total, nearly $6.5 trillion were assets entrusted to the firm’s wealth management business, a figure up 14% year over year.
Helping to drive that increase was $59.2 billion in net new assets for the firm’s wealth management division. Chief Financial Officer Sharon Yeshaya said on the earnings call Wednesday that many of the inflows came through the firm’s workplace channel, which provides services like helping employers pay employees partly with ownership stakes in their companies.
“It’s not just one channel from the advisor-led side,” Yeshaya said. “We do have [advisor] recruiting, but we also have flows coming in from workplace.”
The wealth management unit’s $59.2 billion in net new assets in the second quarter was up by a whopping 63% from the same period a year ago. But like its fellow wealth managers Merrill and Citi, Morgan Stanley saw its new asset tally slide from the first quarter of this year, when it brought in $93.8 billion. Yeshaya told analysts Wednesday the culprit was in part $22 billion clients set aside to pay taxes.
Nearly $43 billion of the firm’s net new assets went into fee-generating accounts, which are particularly prized for their ability to generate steady income amid economic ups and downs. That figure was up 65% year over year.
The second goal: A 30% operating margin
The second pillar of Morgan Stanley’s plans for its wealth business is to bring its pre-tax margin up to 30%. That margin — the percentage of its revenue left over after expenses besides taxes are subtracted — rose to 28.3% from 27% in the first quarter.
“The underlying business progressed towards our long term goal of 30%,” Yeshaya said.
Morgan Stanley reported its wealth unit’s net revenue increased by 14% year over year to nearly $7.8 billion. Its non-interest expenses were up by 8% to $5.5 billion, including $4.3 billion in compensation-related costs. And its profit before taxes rose by 21% to $2.2 billion.
