Morgan Stanley’s Wealth Management Revenues Could Reach $18.4 Billion By 2021

by Trefis Team
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Morgan Stanley’s (NYSE:MS) business model is heavily dependent on its wealth management division, as it is the single largest contributor to its top line (43% of total revenues in 2018). Trefis has analyzed trends in Morgan Stanley’s Wealth Management business since 2006 in an interactive dashboard, along with our expectations over the next three years. While industry headwinds are likely to weigh on wealth management fees for Morgan Stanley, an increase in lending activity coupled with a swelling base of client assets should drive revenues steadily higher over coming years.

Trefis estimates Morgan Stanley’s valuation to be $54 per share, which is about 20% higher than the current market price, and incorporates changes to our forecast following Morgan Stanley’s earnings release earlier this month. Additionally, you can see more Trefis data for financial services companies here.

Morgan Stanley’s Net Interest Income From Wealth Management Loans Would Cross $5.0 Billion By 2021

  • Average loans have increased with an average annual rate of 6.7% over 2016-2018. We expect it to grow at an average annual rate of 5% from $83 billion in 2018 to $96 billion in 2021.
  • Net Interest Yield is expected to remain around the current level of 5.2% over coming years.
  • Overall, growth in net interest income will slow down from 10.3% annually over 2016-2018 to 5.1% annually for the next three years – primarily because the increase over recent years has been driven by the Fed’s rate hike process.

Morgan Stanley’s Total Client Balance Would Cross $2.67 Trillion By 2021 Leading To $13.4 Billion in Fee Income

  • Although total client balance is expected to grow at an average annual rate of 5.1% in subsequent years – up from 4.9% over the last three – fees as % of total client balances are expected to decrease slightly due to intense competition in the global wealth management industry.
  • Overall, fee income has grown at an average annual rate of 4.8% over 2016-2018 which is expected to slow down and result in annual wealth management fees reaching $13.4 billion by 2021

Morgan Stanley’s Wealth Management Revenues Would Cross $18.4 Billion By 2021

  • Morgan Stanley’s wealth management revenues have grown with an average annual rate of 6% over 2016-2018.
  • However, we expect the growth rate to drop to 2% annually for the next three years due to weak growth forecast for fee income, partially offset by expected increase in net interest income. This would result in a revenue figure of $18.4 billion by 2021, up from $17.2 billion in 2018.

How Does Morgan Stanley’s Growth In Wealth Management Compare To Its Peers?

  • The five largest banks in the world in terms of their wealth management operations are UBS, Bank of America, Morgan Stanley, Credit Suisse and JPMorgan (in decreasing order of client assets)
  • Focusing on the three largest U.S. wealth managers, Bank of America is expected to lead with $19.2 billion in wealth management revenues by 2021, closely followed by Morgan Stanley with $18.4 billion and JPMorgan with $14.2 billion.
  • Notably, JPMorgan has reported growth rate of 8.1% over 2016-2018, which is the highest among these banks.
  • Although each of the three banks is expected to report a decline in average growth rate over subsequent years, Morgan Stanley is expected to have the highest average growth rate of 2%.

Per Trefis, Morgan Stanley’s Revenues (shows key revenue components) are expected to cross $40 billion in 2019 – leading to an EPS of $4.89 for the year. This EPS figure coupled with a P/E multiple of 11x, works out to a price estimate of $54 for Morgan Stanley’s stock (shows cash and valuation analysis), which is 20% above the current market price.

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