Morgan Stanley, which is set to receive another $57 billion of deposits from Citigroup Inc. as part of its Smith Barney purchase, plans to accelerate lending to put those funds to use.
Morgan Stanley targets a loan-to-deposit ratio of about 70 percent in 2015, compared with about 55 percent last year, Chief Financial Officer Ruth Porat said today at an investor conference in New York organized by Barclays Plc. Interest income has the highest incremental profit margin of any revenue in wealth management, Porat, 55, said.
In addition to mortgages and securities lending to individual clients, the bank will boost commercial real estate, corporate and warehouse lending, according to Morgan Stanley’s presentation. The New York-based firm said it expects each of those businesses to make a return on equity of at least 15 percent.
“The fact that we don’t have bricks and mortar, and the fact that our client relationships are already in place” make the returns of the lending business “compelling,” Porat said.
Morgan Stanley will exclude its growing loan portfolio from the risk-weighted assets in its fixed-income trading business, Porat said. Excluding those assets enabled the unit’s RWAs to drop to $219 billion on June 30, Porat said. The business now aims to cut them to $180 billion by the end of 2016, she added.
Banks measure RWAs to help determine how much capital they need to absorb potential losses on their holdings.