Strong financial results from Morgan Stanley and Merrill Lynch have analysts wondering if the firms’ wealth management units can achieve even higher profit margins.
Behind the strength of strong equity markets, both firms achieved pretax profit margins of 26 percent for the fourth quarter—and their chief executives expect even better results going forward.
Bank of America, including Merrill, reported earnings Wednesday, and Morgan Stanley reported Thursday.
Brian Moynihan, chief executive at Bank of America, told analysts on an earnings call that he expects the wealth management unit to get to 30 percent margins with the help of improved automation, the use of Merrill Edge for lower-end clients, and higher interest income from its bank-deposit sweep program.
“We still believe we can get up around 30 [percent],” Moynihan said, according to a transcript of the call from Seeking Alpha.
Morgan Stanley chief James Gorman has set a 26 to 28 percent profit-margin goal for his wealth management business, and when pressed by analysts if that range might be too conservative, Gorman allowed that margins could go even higher if the markets cooperate. The expiration in January 2019 of a big chunk of retention bonuses will also help.
But “I wouldn’t get ahead of the top end of this range,” Gorman warned on an earnings call Thursday. “I put the range out there because that’s what we think we’ll achieve over the next few years.”
Both firms closed out the year with a big jump in pretax profits.
Merrill Lynch earned $1.2 billion before taxes, up 21 percent from $996 million in the fourth quarter of 2016.
Morgan Stanley’s wealth management business reported pretax income from continuing operations of $1.15 billion, up 29 percent from the $891 million earned in the fourth quarter of last year.