MS Morgan Stanley

By Michael Wursthorn 

Morgan Stanley's brokers hit a productivity milestone -- more than $1 million in average revenue per broker -- and put themselves ahead of rival Merrill Lynch for the first time.

In an analyst call to discuss the bank's fourth-quarter results, Morgan Stanley said its brokers on average generated $1.01 million in annual revenue during the period, up from $947,000 the year before. The fourth-quarter total represents a 46% gain since 2009, when Morgan Stanley combined its wealth unit with Citigroup Inc.'s Smith Barney brokerage.

Bank of America Corp.'s Merrill Lynch, in comparison, last week said its brokers generated average revenue of $964,000 in the fourth quarter.

The biggest retail brokerages have lusted after the $1 million-per-broker threshold in the years since the financial crisis, as firms have put more emphasis on raising the average revenue generated per broker and less on fielding bigger broker forces.

UBS Group AG's U.S. brokerage was the first to surpass the $1 million average revenue mark in 2012 with a broker force less than half the size of Morgan Stanley's. Merrill Lynch hit the $1 million threshold in 2013, but they haven't hit it again since mid-2015 as lower revenue and an influx of newer brokers have pulled that average down.

Morgan Stanley's brokers helped push the unit's revenue, profit and assets higher. The wealth unit's fourth-quarter profit rose 16% to $891 million from the year-earlier quarter on revenue of $3.99 billion, which was up 6%. Client assets ticked up 6% to $2.1 trillion thanks to inflows and higher market valuations. The firm continued to build up its banking operations, collecting $153 billion in deposits, up 3% from last year, and $73 billion in liabilities, which was 14% higher than 2015.

Morgan Stanley's wealth arm had a pretax profit margin of 22%, down 1 percentage point from the third quarter, but up 2 points from the year-earlier quarter.

Morgan Stanley as a whole posted its best fourth quarter since the financial crisis.

The bank's brokerage gains came as the firm continued to invest in new digital wealth-management tools and services for its clients amid a reduction of its head count and footprint. Morgan Stanley's number of brokerage branches was 601 as of the end of 2016, down about one-third since 2009, while the number of brokers has fallen 13% over that time to 15,763.

Morgan Stanley's branch closures have been part of its consolidation efforts following the Smith Barney merger, a spokesman said, adding that the firm hasn't withdrawn from any markets. "As leases have come up for renegotiation, we have consolidated office locations in markets where there was duplication," the spokesman said.

The spokesman also said Morgan Stanley's digital investments won't affect its number of branches.

Morgan Stanley Chief Executive James Gorman offered additional color regarding the bank's digital strategy Tuesday, saying the investments should modernize its branches so clients can be served more efficiently, while offering investors the chance to interact with the firm on a purely digital basis.

"Over time, we want digital capabilities to service individuals who are more focused on a full digital relationship," Mr. Gorman said. He added that while the firm continues to focus on working with ultrawealthy clients, it is open to using its digital tools to work with clients with less in assets.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

January 17, 2017 13:24 ET (18:24 GMT)

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