How Morgan Stanley (MS) Makes Its Cash

Morgan Stanley shares a reputation, or a part of a reputation, with JPMorgan Chase & Co. (JPM) and it’s not a coincidence. The “Morgan” in Morgan Stanley is J.P. Morgan’s grandson. The corporate was based by Henry S. Morgan, Harold Stanley, and others in 1935. Morgan Stanley was created as an funding financial institution, however it’s also significantly extra. Morgan Stanley’s business banking operation, for instance, competes towards Wells Fargo & Co. (WFC), US Bancorp (USB), and related stores.

For the fiscal yr 2021, the corporate reported its second consecutive report earnings of $59.8 billion, in contrast with $48.8 billion the prior yr. This is a rise of 23% yr over yr.

On Oct. 14, 2022, the corporate reported internet revenues of $13.0 billion for the third quarter of the yr, in contrast with $14.8 billion a yr earlier than.

Institutional Securities

Morgan Stanley’s three main enterprise items are Institutional Securities, Wealth Administration, and Funding Administration. Institutional Securities is Morgan Stanley’s greatest moneymaker, with internet revenues of $29.8 billion within the 2021 fiscal yr.

Institutional Securities’ purchasers are comprised of firms, governments, monetary establishments, and high- to ultra-high-net-worth purchasers. This enterprise section provides companies akin to funding banking, gross sales and buying and selling, and different merchandise like company lending actions.

In its fiscal 2021 yr, wealth administration revenues had been up 26.7% and funding banking revenues had been up 68%, in comparison with the yr earlier than.

Morgan Stanley’s funding banking arm makes cash by charging charges on advisory companies akin to restructurings and mergers and acquisitions.

Globally, Morgan Stanley is constantly extremely ranked in mergers and acquisitions and preliminary public choices (IPOs). A few of the underwriting contains securities choices and the syndication of loans. By way of gross sales and buying and selling, Morgan Stanley earns a revenue by performing as a market maker for prospects’ purchases and gross sales of monetary devices.

The Wealthy Get Richer

Morgan Stanley’s Wealth Administration operations–which gives a vary of monetary companies and options to particular person traders and small to medium-sized companies/establishments–require the companies of over 16,000 professionals doing enterprise world wide. Morgan Stanley advises about 3.5 million individuals and holds greater than $3.9 trillion in advisor-led shopper belongings.

Morgan Stanley provides merchandise and companies in brokerage and funding advisory, retirement plans, and monetary and wealth planning companies, amongst different issues. Wealth Administration’s internet revenues in 2021 had been up from 2020 because of progress in asset administration revenues and internet curiosity earnings.

Market appreciation and internet constructive flows have elevated asset administration revenues, however a few of these revenues have been offset by decreases in common payment charges. For instance, Morgan Stanley earns cash off of fee-based purchasers by charging a contractual proportion of their belongings associated to accounts which can be typically not pushed by asset class.

All in all, Wealth Administration took in internet revenues of $24.2 billion with a pre-tax margin of 26% in 2021.

Enriching the Center Class

Funding Administration, Morgan Stanley’s smallest division, does most of its work with institutional traders. This contains endowments, authorities entities, sovereign wealth funds, and insurance coverage corporations. 

In 2021, the Funding Administration division’s internet revenues had been $6.2 billion. representing a 66% improve over 2020. The upper revenues had been pushed, in giant measure, to report belongings underneath administration of $1.6 trillion.”

Web revenues within the Funding Administration group come from two locations– Investments and Asset Administration–each of which rose in 2021. Morgan Stanley makes cash from Investments via sure closed-end funds which can be sometimes held for long-term appreciation and topic to gross sales restrictions.

Alternatively, Asset Administration earns their preserve via numerous contractual agreements. One instance of this is able to be receiving performance-based charges primarily based upon a proportion of the appreciation earned by investments made by the cash supervisor. 

The Backside Line

The financial system provides few certainties, however right here is a few them: Firms, each upstart and established, will proceed to get their palms on cash. Funding corporations, at the least within the foreseeable future, are going to be much more adept at elevating funds than even the most effective crowdfunding websites. With that in thoughts, it’s a conservative wager that Morgan Stanley will proceed to make billions of {dollars}.