Morgan Stanley Exits India’s Private Wealth Market In Retrenchment

Morgan Stanley (NYSE:MS) has inked a deal with London-based Standard Chartered to sell its struggling Indian wealth management unit in what comes as the latest step by the global investment bank towards shifting the entire focus of its wealth management business on the U.S. market. ^[1] Just last month, Morgan Stanley announced the sale of its private wealth management in Europe and the Middle East to Credit Suisse (NYSE:CS) – making an exit from the business in the U.K., Italy and Dubai (see Credit Suisse Expands Private Wealth Reach In Eastern Europe & Middle East).

It took Morgan Stanley a little more than six months to zero in on Standard Chartered as the right suitor for its India wealth unit (see Morgan Stanley Looking To Exit Private Wealth Business In India). While the financial terms of the sale have not been disclosed, the deal is expected to complete by the end of this year.

We have a $24 price estimate for Morgan Stanley’s stock, which is slightly below its current market prices.

See our full analysis of Morgan Stanley

Morgan Stanley entered India’s private wealth management market in September 2008 in what was the bank’s first foray into the private wealth industry in Asia. Over the years, Morgan Stanley expanded its reach in the country with operations in four cities with 70 employees. The unit has around $1 billion in assets under management, including loans handed out – a fraction of its total wealth management assets ($1.8 trillion at the end of 2012) as shown in the chart above.

But the unit has performed rather poorly compared to the high expectations it carried, primarily because of the highly fragmented nature of the market in India combined with the country’s slowing economic growth in recent years. A large number of local players and regulatory restrictions on investment products that can be offered only add more pressure to the already low margins in the business.

Morgan Stanley continues to revamp its wealth management business, trying to cut costs further after having successfully turned around the world’s largest brokerage – the erstwhile Morgan Stanley Smith Barney business – to generate operating margins of 17% from the poor single-digit figures seen since the economic downturn of 2008 (shown in the chart below). Pulling down the shutters on all units which are barely breaking even only seems the right thing to do in the interest of the global business.

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1. Morgan Stanley to Sell India Wealth-Management Assets, The Wall Street Journal, May 20 2013 [↩]