“The fixed-income rebuild hasn’t worked as well as they had hoped,” David Trone, an analyst with JMP Securities LLC in New York, said in a Bloomberg Radio interview. “They want to be more of an asset-gathering institution that also does investment banking and a little bit of trading. They’re not yet really to the point where they’ve convinced all of us what they are yet.”
One way to think about Morgan Stanley is that it's a big room full of people who invest (or, trade with) other people's money.1 That money finds its way into Morgan Stanley's hands in different ways, and those ways change (slowly) over time. Some of it comes from individual investors whose wealth Morgan Stanley Global Wealth Management manages, globally. Some of it is from mutual funds and institutional assets managed by Morgan Stanley Asset Management. Some of it is from shareholders. Some of it is bank deposits. Quite a bit of it is repo and whatnot.
Here's the mix of where it comes from over the past few years:2
This is pretty unscientific, and Morgan Stanley's ability and desire to do stuff with its repo funding differs from its ability and desire to do stuff with non-fee-earning client cash. Still you can see some trends there I guess? Certainly the relative proportion of "its own" money that Morgan Stanley invests - money belonging to its shareholders and creditors - not only went down dramatically after it bought a chunk of Smith Barney in early 2009, but has been coming down slowly ever since. The move to asset-gathering is happening, though slowly.
Also of some interest to me is how little of the money that Morgan Stanley trades and invests with is "its own" in the narrow sense, that of belonging to its common shareholders. Of nearly $3 trillion in money that Morgan Stanley has some influence over, just $61 billion, or about 2%, comes from its shareholders. Nearly $1.8 trillion - 30 times as much - comes from retail clients.
And of course in putting all of that money to use, Morgan Stanley skims off a bit. Here's a rough cut of how much revenue comes from each of those pots:3
A while I put up a chart from a Morgan Stanley presentation showing that asset management & wealth management have gone from 31% of revenues in 2007 to 50% in 2012, with trading and investment banking shrinking accordingly. You can see why they'd be happy about that. You can worry as much as you like about wealth management revenues and margins and so forth but all in all what a boring series of blue bars. And what a wild ride those red bars have gone on. You can see how increasing the proportion attributable to wealth management and asset management would increase the multiple. Though doesn't it kind of look like they've done that mainly by shrinking the red bars - the banking and trading revenues - and leaving the rest the same? Maybe not the ideal way to do it.
MS Earnings Release & Financial Supplement [EDGAR]
Morgan Stanley Shares Fall as Investors Appear Unimpressed With Profit Report [DealBook]
Morgan Stanley Beats Expectations But Bond Unit Weighs on Earnings [WSJ]
Trading Crashes at Morgan Stanley [CNBC]
1.That's a little unfair - some of the people merge other people's companies with each other, or sell other people's bonds to still other people. This is not unrelated to investing people's money for them but the amounts of money are a little harder to measure meaningfully. It might be enlightening to try, but exercise for reader.
2.Here that is in dollars:Obviously the big move in early '09 is from Smith Barney. Data, sources and kludgy spreadsheet here.3.Here's a sort of ROA measure:
This is unfair because it counts 100% of on-balance-sheet assets as supporting Institutional Securities, which is wrong: wealth managers need phones and goodwill and stuff too, which is financed by MS stock and bonds and so forth. It's directionally okay, though; roughly 2/3 of MS's capital is allocated to Institutional Securities, and one imagines rather more of its debt.