Supported by a strong showing from the banks wealth management unit, Morgan Stanleys earnings grew 30% to $1.5 billion in the first quarter of 2014.
Profits for Morgan Stanley Wealth Management increased 12.5% during the quarter, rising to $423 million from $376 million for the same period a year earlier. The strong performance was attributed to increased advisor productivity, growth in fee-based assets and continued improvements in the firms private banking business.
Average annualized revenue per advisor rose to $881,000 from $851,000 for the same period the prior year. Fee-based assets surged 17% year-over-year, reaching $724 billion from $621 billion.
Overall, the fee-based asset flows are very strong, said Alois Pirker, research director at Aite Group. I think thats where the rubber hits the road.
Interest income, which includes home mortgages, jumped to $581 million, a 19% year-over-year increase. Ruth Porat, Morgan Stanleys CFO, said the firm expects continued growth from mortgages, in part because the firm has been slower than its rivals to develop this business.
We are meaningfully underpenetrated in this market relative to our peers. Weve been slow to build it because we wanted to ensure that credit risk management was in place and that it was a good experience for our clients, Porat said.
Porat added that Morgan Stanleys advisors were experiencing considerable success offering mortgage services to their clients, and that this will be a tailwind for profits going forward. We know the clients. We have their assets here, she said.
Analysts confirm that the Morgan Stanley is benefiting from improvements in this business.
Personal loans and mortgage loans within wealth management have gained traction this year. Its really helped with revenues, said Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods.
Revenues for wealth management rose 6% for the quarter, increasing to $3.6 billion from $3.4 billion. This was partly due to a larger advisor headcount, which rose slightly to 16,426 from 16,284 for the year-ago period.
The positive results follow a recent shakeup of the wealth management units executive team. The firm reduced the number of divisions from three to two and the number of regions from 12 to eight, according to the company.
CEO James Gorman told analysts during the call that the streamlining was a by-product of the firms merger with Smith Barney.
I think its the last gasp post-integration, said Gorman. Now that the business is stable, the new leadership under Shelly OConnor [head of field management] determined that they could make the business a little more nimble and a little more efficient.
The improved performance at Morgan Stanley follows a weak fourth quarter, when the firms profits were dampened by $1.2 billion in litigation expenses.
The banks revenues rose from to $8.9 billion from $8.1 billion, a 10% increase. Earnings-per-share surged to $0.74 from $0.48.
This quarter we generated higher year-over-year revenues in all three of our business segments, demonstrating the momentum we have built across the firm, Gorman said in a statement. We continue to execute on our multi-year strategy to deliver consistent returns for our shareholders through revenue growth and strong expense discipline. We are pleased that this year we will commence a further share repurchase of up to $1 billion and double our dividend.