Tuesday, December 7

With $20 Billion in Deals This Year, Morgan Stanley Pivots Further Away from Risky Wall Street

KEY POINTS

  • With the announcement Thursday that Morgan Stanley is acquiring investment supervisor Eaton Vance for $7 billion, CEO Gorman is adding heft and scale to the tiniest of the New York-based bank’s 3 primary services: the manufacturer of shared funds and other investments.
  • Now, after $20 billion worth of recent offers, the bank will get well over half its earnings from fees associated with wealth and financial investment management.
  • When including its 2 recent acquisitions, Morgan Stanley would’ve produced $26 billion in wealth and financial investment management income in 2019, making it the most significant such company in the world by revenue, the bank says.

Morgan Stanley CEO James Gorman has simply completed a pivot that started more than a year ago.

With the statement Thursday that Morgan Stanley is obtaining investment manager Eaton Vance for $7 billion, Gorman is including heft and scale to the smallest of the New York-based bank’s three main companies: the manufacturer of mutual funds and other financial investments.

It finishes Morgan Stanley’s shift from being a firm controlled by traders and financial investment bankers to one where the more controlled and dependable management of cash guidelines.

The bank started that journey in early 2009 when Morgan Stanley acquired Smith Barney from Citigroup in the throes of the monetary crisis, gaining countless financial consultants in the process. This year, Gorman went a step, even more, revealing the $ 13 billion takeovers of discount brokerage E-Trade to enhance its reach with the mass upscale.

Now, after $20 billion worth of current deals, the bank will recover over half its revenue from charges related to wealth and financial investment management –– owning a shared fund factory with $1.2 trillion in assets and one of the world’s most significant armies of monetary consultants to distribute them.

“We wanted to ensure that in very challenging times Morgan Stanley is steady in the water,” Gorman stated Thursday in a call with analysts. “A decade back, our asset management and wealth management businesses had brilliant areas in them, however, they weren’t huge enough, they weren’t at scale enough where they can offer real stability to the rest of the company.”

When including its 2 recent acquisitions, Morgan Stanley would’ve generated $26 billion in wealth and financial investment management earnings in 2019, making it the greatest such business worldwide by income, the bank says. All told, it will manage $4.4 trillion in client properties.

However financiers have yet to acknowledge Morgan Stanley’s transformation, Gorman stated.

“Our dear rival Schwab, which is a terrific business, is I believe trading at something like 20 times incomes at the minute,” Gorman vented. “And we’re trading as though we’re a pure trading company at about 9, 10 times incomes. It makes absolutely no sense.”

If his company traded at the midpoint in between the 2 categories, at around 14 or 15 times revenues, “this stock would be $100” rather of its existing level of about $49, Gorman stated. “You have actually got to play the long video game here.”

For Eaton Vance, a medium-sized gamer that focuses on actively handled funds, the deal relieves pressure that all asset supervisors not called Vanguard, BlackRock, or Fidelity face. The shift to low-cost passive financial investments has required seismic modifications throughout the market.

“They are acquiring an excellent asset in a hard industry,” stated Devin Ryan, an expert at JMP Securities. “The only factor for a rather soft response today is that they’re paying what seems full price, and the near-term economics are modest in terms of moving the needle.”

Meanwhile, at Morgan Stanley’s competing Goldman Sachs, CEO David Solomon has been much more consumed by reorganizing the organizations he currently owns rather than buying new ones. The bank just recently reshuffled the heads of his asset management and customer and wealth management divisions.

Their focus may soon alter to growing via acquisition, Ryan stated. “Goldman Sachs isn’t precluded from doing things that are larger,” he said. “I would not be surprised if they went that route.”