By Steve Gelsi
Morgan Stanley shares rose for their second straight day Thursday after the bank issued a bullish view on its return on average tangible common shareholder equity (ROTCE) and growth in its client assets business.
Morgan Stanley CEO James Gorman said the firm added $1 trillion in client assets last year, including $438 billion in net new assets.
The bank ended the year with about $6.5 trillion in client assets including its $4.9 trillion in wealth management and $1.6 trillion in its asset-management unit, with that figure expected to grow to $10 trillion in the not-too-distant future, Gorman said.
Adding color to the firm’s guidance, Gorman said he expects a “very healthy growth rate” of 5% to 7% in client assets, ahead of the past growth rate of 3% or 4%.
He estimated if the figure grows by 5% a year in net new money and enjoys market appreciation of 5% to 6%, the firm will reach $10 trillion within five years.
“If you compound…you get to really big numbers,” Gorman said. “We can see a path to $10 trillion here, and we want to call that because we believe that’s going to happen.”
Morgan Stanley also provided an outlook for roughly 20% return on average tangible common shareholder equity (ROTCE), in line with the 20.2% delivered in 2021, including 20.4% in the fourth quarter. Previously, the bank had said it expected ROTCE of 14% to 16% over the last couple of years.
“I don’t think you’re going to find another bank in the world that’s putting out a 20%-plus ROTCE goal,” Gorman said.
One analyst asked if Morgan Stanley will ramp up its risk exposure to reach the 20% ROTCE target, but Gorman said no.
“This is not about growing the balance sheet and growing risk-weighted assets,” Gorman said. “This is about growing durable fee sources, durable revenues, and managing our expenses. I don’t know if we’re going to achieve it every single year, but we’re certainly – it’s certainly a goal and it’s a goal for a reason. So, no, I don’t think it involves taking extra risk.”
BMO Research analyst James Fotheringham said Thursday that Morgan Stanley’s long-term financial targets were broadly in line with previous expectations.
He reiterated an outperform rating on Morgan Stanley and shaved his price target by $1 to $108 a share on higher expected costs.
“MS continues to exhibit strong fundamental momentum across its businesses (particularly in wealth management and investment management,” he said.
These two units will help Morgan Stanley shift to “more predictable and faster-growing business,” he said.
Fotheringham trimmed his forward earnings estimates for Morgan Stanley by as much as 3% due to higher costs.
Morgan Stanley shares are up 2% so far in 2022 and about 35% in the past year, outperforming the S&P 500’s /zigman2/quotes/210599714/realtime SPX -4.04% year-to-date loss of 3.8% and rise of 19% in the last 12 months.