The unit can achieve a 20 percent to 22 percent margin absent any changes in the broader markets, Gorman, 54, said today at a conference sponsored by New York-based Morgan Stanley. The firm is awaiting approval to buy the remaining 35 percent of a brokerage joint venture that comprises the bulk of the division.
The latest margin target is the highest yet for the world’s largest brokerage, a business Gorman is relying on to help boost return on equity. Shortly after taking over as CEO, Gorman set a goal of 20 percent by end of 2011, which the division failed to reach. Gorman said earlier this year he made that prediction “foolishly.”
“We see a transformation in what is going to occur in our overall economics as an institution through this transaction, and we remain very excited about it,” Gorman said today.
The unit produced a 17 percent pretax margin in each of the past two quarters, topping a target of 15 percent by the middle of this year.
“A lot of people, when we exceeded the 15 percent in the fourth quarter of last year, thought we were low-balling it, staying with our new target of 15 percent through the middle of this year,” Gorman said today. “But we thought, frankly, changing margin projections every quarter doesn’t make a lot of sense.”
Gorman has set a price with New York-based Citigroup Inc. to purchase the rest of the brokerage venture, which was created in 2009. Morgan Stanley said in January that it will pay $4.7 billion for the last piece, which will place demands on an additional $400 million of capital. Gorman said today that the firm will take a $200 million charge when it completes the purchase.
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