(Bloomberg) -- Morgan Stanley Chief Executive Officer James Gorman said his firms wealth-management unit can earn a pretax margin of more than 23 percent by 2015 as interest rates and stock markets climb.
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 worlds 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 doesnt make a lot of sense.
The business, led by Greg Fleming, had 16,284 financial advisers and $1.79 trillion in client assets at the end of March. The division accounted for almost half of the banks net revenue last year.
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.