Morgan Stanley's first quarter earnings Thursday showed that the financial company, after getting bludgeoned in the financial crisis, is staking its future on the steady business of wealth management.
Profit and revenue soared in wealth management, Morgan Stanley reported, even as they dipped in investment banking.
The wealth management unit generated more fees, and clients shuttled more assets to the bank. Profit margins rose and so did employees' productivity.
The wealth management unit accounted for about 41 percent of revenue, after stripping out an accounting charge. Three years ago, when CEO James Gorman took over, it accounted for 34 percent.
In contrast, the company's investment banking unit brought in less revenue from trading bonds and commodities, and made less money on advising companies on mergers and acquisitions.
Overall earnings slipped 12 percent from a year earlier -- to $1.2 billion, or 61 cents a share. While that result beat expectations of analysts, investors weren't impressed. The stock fell 5.4 percent, down $1.16 to $20.31.
Gorman said the first quarter represented "solid momentum." He's been investing in the wealth management unit, emphasizing products like home loans, and steering the purchase of the rest of Morgan Stanley Smith Barney, the retail brokerage it owns with Citigroup.
Analysts, however, described the quarter almost like a holding period. They said the bank was moving toward the correct positions but were disappointed by weaknesses in the investment bank. They're also anxious for the Morgan Stanley Smith Barney deal to be completed.
Gorman, the CEO since the start of 2010, is under pressure to restore Morgan Stanley's share price and measures of profitability, including its return on equity. His direction for the bank is borne from previous losses: Risky investment banking activities slammed Morgan Stanley in the financial crisis, and regulators are phasing out some of the investment bank's old sources of revenue, like trading for its own profit.
Gorman's response has been to expand the bank's work with individual investors. That business can provide a steady source of revenue even when financial markets are volatile. It also gives the bank more earnings power and access to deposits, which helps it fund lending and other initiatives.