Morgan Stanley's Bet on Wealth Management Pays Off

A bet on the bank's brokerage unit appears to be paying off
Kevin Peters, a financial adviser for Morgan Stanley Wealth Management, in his Purchase, N.Y. office. Photograph by Brian Finke for Bloomberg Businessweek

Morgan Stanley wrapped up bank earnings week Friday morning by surprising analysts with net income of $507 million in the fourth quarter of 2012, compared with a $250 million loss a year earlier. Operating income was $859 million—and the lion’s share of that, $581 million, came from the bank’s newly beefed-up wealth management division, just as Morgan Stanley had hoped it would.

In September, Chief Executive Officer James Gorman agreed to buy out Citigroup’s half of Smith Barney, the brokerage the two banks jointly owned. The unit’s steady, low-risk fee income is attractive as Morgan Stanley relies less on investment banking activity. Last week, shares rose on the news that the company was cutting 1,600 jobs from its investment bank; the stock is now up 14.6 percent since the start of the year.

Morgan Stanley Wealth Management, as the Smith Barney unit was renamed, is staffed by people such as Kevin Peters, whom Bloomberg Businessweek profiled in December. The boss of a team that advises 350 families with $2.7 billion in assets, Peters is part investment strategist, part headshrink as he charts out how clients can find higher returns and keep their children’s inheritance from the tax man.

Earnings season offers a chance to evaluate the health of the country’s big banks in quick succession, as some demonstrate signs of strength while others seem to still be hobbled by the financial crisis and its aftermath. Wells Fargo kicked things off Jan. 11, with gains from its mortgage business powering record net income of $5.09 billion. Mortgages helped JPMorgan Chase to a strong quarter, too, while Goldman Sachs said fourth-quarter earnings more than tripled.

The underchievers, predictably, were Bank of America and Citigroup. Shares of both fell after they announced disappointing results on Jan. 17. “Both organizations are, for lack of a better word, somewhat lost,” Joshua Siegel, founder of StoneCastle Partners, told Bloomberg News.

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