Morgan Stanley CEO sees path to $10 trillion in assets under management as stock market rally continues

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Shares of Morgan Stanley rose for their second straight day on Thursday after the bank issued a bullish view on its return on average tangible common shareholders’ equity (ROTCE) and growth in its client asset business.

Morgan Stanley MS,
+6.15%
advanced 3.8% on Thursday, accelerating the stock’s 1.8% gain in yesterday’s trading after beating Wall Street’s profit target.

Morgan Stanley CEO James Gorman said the company added $1 trillion in client assets last year, including $438 billion in net new assets.

The bank ended the year with around $6.5 trillion in client assets, including $4.9 trillion in wealth management and $1.6 trillion in its asset management unit, with that figure expected to reach 10 trillion. billions of dollars in the not-too-distant future, Gorman said.

Adding color to the company’s forecast, 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 that if the figure grew by 5% per year in net new money and benefited from market appreciation of 5% to 6%, the company would reach $10 trillion within five years.

“If you dial… you get really big numbers,” Gorman said. “We can see a path to $10 trillion here, and we want to call it because we think it’s going to happen.”

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Morgan Stanley also provided an outlook of around 20% return on average tangible common shareholders’ equity (ROTCE), in line with the 20.2% achieved in 2021, including 20.4% in the fourth quarter. Previously, the bank said it expected a ROTCE of 14% to 16% over the past two years.

“I don’t think you’ll find another bank in the world that offers a ROTCE target of over 20%,” Gorman said.

An analyst asked if Morgan Stanley would increase its risk exposure to meet the 20% ROTCE target, but Gorman said no.

“It’s not about growing the balance sheet and increasing risk-weighted assets,” Gorman said. “It’s about developing sustainable expense sources, sustainable revenue and managing our expenses. I don’t know if we’re going to achieve that every year, but we certainly are – it’s definitely a goal and it’s a goal for a reason. So, no, I don’t think it involves taking any additional risks.

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BMO Research analyst James Fotheringham said Thursday that Morgan Stanley’s long-term financial targets were broadly in line with previous expectations.

It reiterated an outperform rating on Morgan Stanley and cut its price target $1 to $108 per share on higher expected costs.

“MS continues to show strong fundamental momentum across its businesses (particularly in wealth management and investment management,” he said.

These two units will help Morgan Stanley transition to “a more predictable, faster-growing business,” he said.

Fotheringham cut his forward earnings estimate for Morgan Stanley by up to 3% due to higher costs.

Shares of Morgan Stanley are up 2% so far in 2022 and around 35% last year, outperforming the SPX of the S&P 500,
+1.04%
loss of 3.8% since the beginning of the year and increase of 19% in the last 12 months.

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