wealth management

Morgan Stanley to rue decision to scale back risk?

Jim Kim — Thu, 02 Jul 2009 08:05:38 -0400

We've discussed the apparent divergence between the business models at Morgan Stanley and Goldman Sachs. The New York Times weighs in with a piece that looks at Morgan Stanley's decision to scale back its trading risk, instead opting to expand in wealth management. Some may argue that the decision is backfiring on the company. They would say, hey, just look at Goldman Sachs's expected near-record profits for the second quarter.

Morgan of course will likely produce a loss. Would that suggest a return to the days of big proprietary bets has already returned? I'd argue it would be premature to make such conclusions now. Morgan Stanley long-term may still be better off morphing into a fundamentally different animal, one that is more conservative and ultimately deserving of a higher multiple. You would be unwise to try to match Goldman's prowess as a proprietary trader and principal investor--that has been proven.

For more:
- here's the article

Citi, Morgan close brokerage deal

Jim Kim — Mon, 01 Jun 2009 13:18:51 -0400

The Morgan Stanley Smith Barney joint venture launched a month ahead of schedule. As you know, it combines Citi's Smith Barney business in the U.S. and Australia, Citi's Quilter in the U.K. and Morgan Stanley's global wealth management unit. TheStreet.com notes the combined group will have roughly 18,500 advisors, 6.8 million client households globally and 1,000 brokerage locations. Not to mention $1.4 billion in pro forma revenue. Article

Business model battle: Morgan Stanley vs. Goldman Sachs

Jim Kim — Mon, 27 Apr 2009 19:29:56 -0400

While Goldman Sachs seems very comfortable relying in proprietary risk to generate returns, Morgan Stanley will likely take a different tack. At its annual meeting this week, CEO John Mack is expected to discuss a business model that will focus on underwriting, wealth management, and corporate advisory services, reports Dow Jones. There are advantages to a lower risk approach, it may be that Mr. Market affords risk-averse players a higher multiple than Goldman Sachs, which once again seems to be separating itself from the pack, at least when it comes to models.

We may see a more retail-friendly Morgan Stanley in the near-term, intimated of course by the Smith Barney deal. Dow Jones suggests this is the old Merrill Lynch model at play. It's worth remembering that Merrill Lynch ended up betting its future on the subprime market, to disastrous results.

For more:
- here's the article

Wells Fargo to keep Wachovia units?

Jim Kim — Thu, 09 Apr 2009 09:00:01 -0400

When Wells Fargo snatched Wachovia away from Citigroup, it seemed like quite a coup. But then the real pain set in, and right now people aren't so sure that was the best thing. Wachovia's biggest draw was its massive base of retail deposits. Wells Fargo, however, seems much less enamored with other parts of the company.

The New York Post reports that many feel Wells Fargo will now stick with Wachovia's Evergreen Investments, a money management firm. The bank also seems willing to stick with Wachovia Securities, given that wealth management has emerged as one of the most desirable businesses. The big loser seems to be Wachovia's not-prime-time investment banking unit. Wells Fargo has been scaling it back, and the paper says it will likely continue to do so.

For more:
- here's the article

Bonus spotlight turns to Morgan Stanley

Jim Kim — Wed, 18 Mar 2009 09:26:00 -0400

At least one congressman would like to prevent Morgan Stanley from paying retention bonuses to brokers who work for the new asset management joint venture between Morgan Stanley and Smith Barney, reports Reuters. As we've noted, brokers who generate at least $1.75 million in revenue a year are eligible for a payout worth up to 105 percent of their annual production. Morgan Stanley, which owns 51 percent of the venture, obviously intends to stay competitive against its rival Merrill Lynch, which is also paying retention bonuses.

Despite the outrage, this situation is not quite the same as the AIG situation, where the people responsible for much of the harm were being paid. Retail asset management remains a legitimate business, and such bonuses are a legitimate aspect of the business. It will be interesting to see what becomes of the Wells Fargo wealth management business; it has decided not to pay retention bonuses to brokers it acquired via the Wachovia deal. It is sending a powerful message.

For more:
- here's the article

Broker retention bonuses in spotlight

Jim Kim — Sun, 01 Mar 2009 09:05:08 -0500

Executive bonuses are big no-no these days, but what about broker retention bonuses? Wealth management at the high net worth level seems to be one of the few growth opportunities that banks have. So if you really intend to continue as a full-service bank, it would seem okay to pay up to retain and recruit top brokers. We noted that Morgan Stanley will offer retention packages worth 105 percent of a brokers' annual revenue. Bank of America also intends to retain its top Merrill Lynch brokers.

In the current climate, however, some are wondering if this is a good use of funds for banks that have received TARP funds, reports the Washington Post. We may hear more about this from Congress in the near future. Not all banks are like-minded on this. Wells Fargo, for example, has said it will not pay any broker bonuses. Whether that will spark some sort of exodus remains to be seen.

For more:
- here's the article

Related Articles:
Bonuses news from FierceFinance

How hot is wealth management?

Jim Kim — Wed, 04 Feb 2009 12:46:09 -0500

Investment banking isn't going to be seen as growth business for a while, which has made good, old-fashioned wealth management look all the more promising. Bank of America certainly has hopes for the Thundering Herd of Merrill Lynch. Morgan Stanley has equally high hopes for its Smith Barney venture.

The stakes seem to be rising, as more firms search for big producers. Bloomberg reports that UBS has lured big producers from the likes of Goldman Sachs and Morgan Stanley "by offering signing bonuses of as much as 260 percent of the revenue the brokers brought in over the previous 12 months." That is considered huge, much more than what was offered to Merrill Lynch brokers. The bank is offering signing bonuses of 160 percent to 200 percent of commission revenue for brokers beneath the top tier. So the broker wars seems to be entering a new phase.

For more:
- here's the article

Thundering Herd, not what it used to be?

Jim Kim — Thu, 29 Jan 2009 09:29:28 -0500

How well is Bank of America digesting the Thundering Herd of Merrill Lynch? Well, there's been no shortage of fireworks since the deal was announced, the latest of course was the surprise departure of Bob McGann as head of the retail wealth management unit.

His replacement, Dan Sontag, has a tough job ahead of him. With the entire industry tightening their belts, he was forced to announce a move to get rid of hundreds of rookie brokers--which provided a lot of broker support, frankly--and cancel trips for the higher producers, reports the New York Post. All this "was very shocking news," said one broker whose branch cut its entire staff of rookies.

For more:
- here's the article

Related Articles:
Thundering Herd news from FierceFinance

John Thain out at Bank of America

Jim Kim — Thu, 22 Jan 2009 13:41:28 -0500

Unlike Citi CEO Vikram Pandit, John Thain definitely got a honeymoon when he took the top job at Merrill Lynch. The press was full of fairly glowing articles noting his technology background and Goldman Sachs bona fides. My, how things have changed.

The news that John Thain will leave Bank of America was preceded by a lot of second-guessing and anger over the need to inject yet more taxpayer money into Bank of America, just so it could close the deal. Thain of course was slated by CEO Ken Lewis to oversee Bank of America's investment banking and wealth management operations. It would be hard for him to be effective in that role given recent events. The issue now is severance, as a huge package will spark outrage. A sure sign that Thain was ousted: Someone leaked that he spent $1.22 million to redesign his office.

For more:
- here's the article on the redesign from CNBC
- here's some background from CNNmoney.com

The end of the financial supermarket

Jim Kim — Tue, 13 Jan 2009 13:43:06 -0500

A deal agreement by Citi to sell a more than 50 percent stake in Smith Barney to Morgan Stanley speaks volumes about the future of Citi. You cannot be a financial supermarket without a wealth management unit. Thus Citi seems to be admitting--finally--that the financial supermarket concept, which has guided it for so long, is dead. Of course, this at a time when Bank of America is embracing it.

The Citi "admission" is remarkable, especially after CEO Vikram Pandit seemed to really buy into the idea. But now the company seems bent on some sales of major assets. Some sense the influence of Uncle Sam, but I'm not sure. There are a lot of questions now about the strategic future of Citi.

For more:
- here's a CNBC article