Profit Goal

The firm’s return on equity excluding the accounting charge was 5.1 percent for the year, unchanged from 2012. While Morgan Stanley achieved its goals on cost cutting and reducing capital used by the trading business, the firm hasn’t reached its target of doubling ROE, a gauge of profitability.

Gorman said in May that the bank can post a 10 percent ROE by this year if regulators allow it to return a “reasonable” amount of capital to shareholders. The company announced a $500 million stock buyback in July. It repurchased $228 million in the fourth quarter, bringing the yearly total to $350 million.

The accounting charge is known as a debt-valuation adjustment, or DVA. It stems from increases in the value of the company’s debt, on the theory it would be more expensive to buy it back. The firm had a $368 million charge from DVA, versus a $511 million charge in the fourth quarter of 2012.

Pretax profit from global wealth management, overseen by Greg Fleming, 50, jumped 26 percent to $709 million as revenue climbed to a record $3.73 billion. The division’s pretax profit margin rose to 19 percent from 17 percent in the fourth quarter of 2012.

Margin Target

Morgan Stanley today set a margin target of 22 percent to 25 percent for the fourth quarter of 2015, assuming no change in interest rates or market levels. That was higher than the previous target of 20 percent to 22 percent Gorman laid out in June.

The brokerage also provides the firm with a growing deposit base that it’s seeking to use for lending in products such as mortgages and corporate lending. Morgan Stanley is targeting a 70 percent loan-to-deposit ratio next year, up from 55 percent in 2012, and Chief Financial Officer Ruth Porat said growth in the bank unit will be the biggest driver of ROE improvement.

The increase in asset prices globally in 2013 has helped boost performance at the brokerage, which generates more than a third of revenue from fee-based accounts that often earn a percentage of assets. Rising stock indexes have also benefited Morgan Stanley, which is the only Wall Street firm to generate more revenue from equity trading than fixed-income trading.

Equities Trading