Morgan Stanley (NYSE:MS)
2014 Credit Suisse Financial Services Forum Conference Call
February 12, 2014 1:45 PM ET
Greg Fleming – President, Wealth Management and President, Investment Management
Christian Bolu – Credit Suisse
Christian Bolu – Credit Suisse
We’ll get started with our next presentation. We are absolutely delighted to have Morgan Stanley here with us. We have Greg Fleming, Head of both the Investment management business and Wealth Management business at Morgan Stanley. The business is actually a smaller part of the story and one that is often overlooked, but really has had a bit of a tailwind recently especially over the last kind of three or four years as Greg as led the business. With that, I will pass it over to Greg who has some thoughts on further growth opportunities for the business going forward.
Great. Thank you, Christian, and good afternoon. That was abysmal. Somebody want to respond? Good afternoon. Thank you. I hope the conference has gone well on behalf of Celeste Mellet Brown, who runs investor relations for Morgan Stanley. We’re pleased to be here and have an opportunity to speak with all of you today. We have three topics and I’m going to try to move through them so that we can leave time for Q&A. I’m happy to take questions across the range of my responsibilities or Morgan Stanley wide questions, but we’re really are here to talk about Investment management and we would like to try to focus, okay? Three things we’re going to run through today; one is Investment management and how it fits within Morgan Stanley.
As Christian said, we have a sizeable institutional securities business, large wealth management business and Investment management is often third in the dialog. We made a lot of progress with our Investment management business. It’s an important part of Morgan Stanley and I’m going to start by placing it within the context of the overall firm. Second topic is the progress that we’ve made in Investment management over the last two years or so. We’ve -- About three years ago at this time, I was in front of a group like this and we set out some objectives for the business. Some very clear benchmarks in where we’re looking to take it. We wanted to mark to market that, that presentation, those objectives stayed[ph] very, very against those. And then my third topic, I will conclude with what do we have going forward? What can we expect over the next three years? And we’ll end the presentation by giving you some sense of not only the strategic priorities, but also what we think we can achieve from a financial and performance standpoint. Okay?
So first let’s look at Investment management within the Morgan Stanley story. The firm, as everybody knows Morgan Stanley as a firm very focused, across the range of businesses. This is James, Colm Kelleher, my partner who runs the institutional securities business and the entire senior management team focused on clients. And that’s true across everything that we do. We’d like to think about investment and wealth management is being about half of the firm in terms of top-line, and the contribution that it’s making to the firm now. And those businesses are providing a lot of balance to what Morgan Stanley is with some of the upside, the turbo charge if you will, coming from institutional securities business. So Investment management and wealth management you see the stack here. From a revenue standpoint, roughly half the firm today fee based, obviously client driven, relatively limited amounts of capital investments. In a Basel III world, these businesses I think are particularly attractive. So we’re upbeat about the profile and the business make the Morgan Stanley as we look at over the next five or 10 years. Our institutional securities strategy you’re familiar with, which is providing full range of services to our corporate institutional clients, plus advisory, equity, debt underwritings, sales and trading around that and there are real synergies between the different businesses in Morgan Stanley. Colm Kelleher and I working on a number of things between the institutional securities business, and both wealth management as well as Investment management. So the businesses do fit together well, and in some of the parts is more than the individual businesses.
So Morgan Stanley Investment management. The headline here is important. Morgan Stanley Investment management is a key part of the Morgan Stanley story. I can talk about multiple reasons for that, I’ll stick with three here today. First, and may be most importantly, Investment management provides a steady and growing revenue stream that’s become more predictable, due to some of the things that we’ve done in managing the business over the last few years. I’m going to spend a lot of time talking about that today, particularly on the Merchant banking and Real-Estate sides of Investment management. Morgan Stanley Investment management’s ROE is attractive and growing. If you look at the numerator, the margins in the business are attractive and if you look at the denominator, we’ve been taking capital out, driven by a couple of things. First and foremost, the strategic decision, James Gorman and I made almost four years ago now, to limit the amount of Morgan Stanley capital that goes into new funds within the Merchant banking, Real-Estate businesses. That decision was followed by the Volcker Rule where there is a nice bright line for how much capital we can put in the funds now it’s 3% of each new fund. Historically, we’ve often had much more than 3% of the fund in Morgan Stanley capital. So we are really focused on managing money for our clients. We invest alongside them and Merchant banking Real-Estate up to 3% value of the fund. And then third and very importantly, Investment management increases the firm’s connectivity with clients. A lot of these clients touch the firm in multiple places, and the business again within Investment management is really 100% focused on clients.
What do we think competitively? I guess the ranking of top investment management firms from assets under management standpoint, we have a sizeable business. It’s well down this page. We’re not trying to compete just on the basis of size. We want to have scale and the businesses in which we’re competing and the ones that we think we’re good at. We will continue to grow assets in these businesses over the next few years, and we feel like our Investment management platform will be much more significant as measured by assets under management few years out. But again, we’re not trying to grow assets simply to move up this table, nor do we think this reflects the strength of the businesses and the positions that we have within Investment management today. Investment management, what is it in Morgan Stanley? We have two primary businesses within Investment management in Morgan Stanley. I want to spend just a minute on this to make sure we’re clear. On the left hand side of the slide, traditional asset management, three primary activities within traditional asset management. One is our long only, primarily institutional intermediary sold business, the second is our Alterative Investment Partners our fund to funds business if you will, although it’s a lot more than that in the current environment and I’ll talk about that. And then the other one is our liquidity business that we’ve grown nicely. We think we’ve got a good footprint in that business, it fits again into the larger Morgan Stanley set of relationships we have with clients. Get a lot of referrals in that business from investment bank, corporations that have a need for cash management. So those are the two activities within traditional asset management.
On the right hand side of the slide, we have Merchant banking and Real-Estate. These are our principle base businesses. Across the Merchant banking space, we’ve got infrastructure, mezzanine, Asia Private Equity and then we have our real-estate business on top of that. The metaphor I use in leading Investment management business is like a three-legged stool. If we’re going to do this business well, there are really three pieces to it. One, first and most importantly is the Investment management side, assets management are relatively straightforward business. Managing money for other people and institutions, and if you do it well, they give you more money to manage and you attract new clients. So very important part of the Investment management side. Then second, [inaudible] sales and distribution, client service it’s a very important part of the investment management organization. And then the third the very bottom, you have the one and operationally tight business. And we’re very focused on all three of those we think we’ve made real progress in the last few years across all three dimensions as I said right about this point in time across Investment management.
Clients, primarily institutional and intermediaries sold for investment management today. Institutional clients one is good classic corporation diamonds foundation insurance companies private pension plans we’ve got important and key relationships with consultants. We do a lot of work with institutional clients. We do sell product through intermediaries, broker dealers, private retail banks etcetera, and we do provide our services to high network clients across a good part of our Investment management footprint. Okay. Where do we come from? What did we accomplish over the last few years? Over the last three years in particular, we’ve transformed Morgan Stanley Investment management into a more profitable capital like business. And one of the major things you’re going to hear from me today is this notion of returns of capital on this business, because we have been working to build a model that’s very focused on managing money for clients, that is relatively light on the capital required as a lot of investment management businesses are. And we can drive our returns on capital higher which is what we’re doing as we speak. Several specific steps that specific measures of progress that we’ve had over recent years. One, we’ve brought our only business. We had a relative limited but successful number of strategies. We’ve added strategies here and we’ve got strong performance really across the landscape within long only. We’ve added high yield senior loans, multi-asset strategies in the last two years. We’ve been focused on growing our liquidity business. We’ve leveraged firm as I said corporate relationships in doing this. Our assets are up 109% since 2010, while the industry assets and our liquidity space are down 1% over the comparable period.
We’ve turned our Real-Estate business to we think is one of the best businesses in the industry again, top-tier status. Completely new leadership one of the first things that I did over the first 12 or 18 months is getting placed a new leadership team here. We have a great team. The performance on the more recent funds is very strong. We got a lot of momentum again in our real-estate business. We’ve rationalized a number of our merchant banking strategies. We have a very strong team in place there. We’ve added resources where we needed to. Again, the performance across our merchant banking set of businesses is good. We’re also focused on the distribution side. We’ve been investing in the sales force. We need to do more in North America, I’m going to hit that a couple of times here. We’re continuing to invest in the North American footprint. And we’ve also focused on cost, which obviously goes to the earning side of the equation. But again works its way back through the return on equity that we’re looking to drive here. Non-comp expenses down 4%, with revenue up 11%, compounded since 2010.
We’ve grown 46% assets under management over the period. This is despite, particularly in the beginning of this timeframe 2010 and 2011, volatile, choppy difficult markets and the fact that we were restructuring a number of the activities across investment management. So the growth is picked up since the middle of 2011. Again, we like the position that we have and the businesses that we’re in. We think we’re well positioned to continue to grow it and frankly we do believe we’re still under-punching the brand. So more to do here in selling out the business from assets under management standpoint. Financial performance, it’s better clearly better, relatively more consistent. Again, as we put less capital in Merchant Banking and Real-Estate the performance trajectory there will be more predictive and more consistent with what we have in the traditional assets management side of the equation. Clearly have stability in the traditional business, which is the blue bars here on this chart. And then on the Merchant Banking side of the equation, better and better performance. The yellow bars over the timeframe, one thing I’ll say about the last two quarters of 2013, they were particularly strong. We had to catch up and carry. We went over a hurdle rates of return after which as GP we get an acceleration to carry until we catch up. So those quarters had particularly good performance.
Our view and belief is over time, as we continue to add new funds and new assets through our Merchant Banking and Real-Estate platforms, we can produce numbers like that on a consistent basis. 2013 financial snapshot right hand of this page assets under management if you would look at it from an assets under management standpoint, it’s primarily our traditional business. I think the left hand pie chart gives a better sense of the business that we built the diversification in revenues and earnings across traditional asset management Real-Estate and merchant banking. And we like the mix on the left hand side of the page, and again we think it’s a set of activities that we’re doing well and it can grow going forward. Okay. Let’s mark to market where we’ve come from. This is roughly three, 3.5 years ago we said these things did we do them, where are we and as I said I’ll work through my third topic which is where we’re going from here. Start with the traditional business.
One of the things that we set out to do and then I said three 3.5 years ago was that, we wanted to be best in class in this business. If we’re going to be best in class in the traditional asset management it really does come down to people. We have terrific portfolio management teams across our long only business. Dennis Lynch who runs our growth business within long only was Morningstar domestic manager of the year in 2013. Ruchir Sharma runs our emerging markets platform he wrote a book that many of you read I would guess or at least have seen, called Breakout Nations. He was one of the early ones to start talking about growth in places like China and the way that works its way back into emerging markets investment. Ted Bigman who runs our Real-Estate business, been at it for a long time, very strong team. A lot of relationships across the industry so we have a very strong investment management teams individuals that have been at it for literally decade in those strategies and at Morgan Stanley during that timeframe. So the numbers 86% of our strategies to be benched mark on a three year basis, 88% on a five year basis, that’s fourth quarter 2013 data. I mentioned earlier, we’ve hired some people some very good people to our new strategies Rich Lindquist has high yield. He came over in the last 18 months, great reputation in the space, really good add for us. Cyril runs our global asset allocation again within long only. He came from a hedge fund and has been a real positive add. So, what we’re looking to do here is around the core teams that have been here for decades build where appropriate, carefully brand managers for strategies we don’t have that we think are attractive to our clients and add them to the platform. We’re very careful in how we do this and asset management company if it’s going to work over the long term we’ve got to have the right culture and people to think similarly about investing so we’re very pleased with these two additions.
We’re also working on the distribution side I mentioned this. We have a good relationship with MUFG, our equity partner and have raised significant assets with their help for a number of these strategies in Japan. And we are continuing to focus on building distribution out again particularly in North America over the next year or two. On the merchant banking side of the equation, we did a number of things. We really sat down, assessed and stabilized and invested in our teams. We started running and managing our platforms as a single platform, rather than a set of despaired businesses, particularly from an operational and distribution standpoint. As everybody here knows, we’ve worked through a lot of legacy issues in our Real-Estate platform. And that result when you put altogether, strong performance across the platform and we’re very well positioned for follow on funds, which is one of the key sets of business it’s like scaling it with a next generation of funds. We’re well down the track on raising two follow-on funds and we’ve kicked off two other strategies where we’re adding follow-on funds. So, a lot of momentum on the merchant banking side. We have within investment management we had a number of stakes in hedge funds, seed capital and hedge funds. We’ve been working that down. So we’ve gone from 6 billion in principal investments in 2010, down to 4.5 billion year-end 2013, improved capital efficiency here we’re not done. We still have additional hedge funds stakes that lie in very good managers. They’re not part of the long term strategy where we’re going. So over time, we would expect to make dispositions there as well and continue to drive this capital number down, which will have continuously positive effect on a return on capital on the business.
One thing I’ll also say here the level of capital commitment and the amount of principal investments here. As I said, our strategy in Merchant banking and Real-Estate historically was to put more capital more than semi-capital into funds. So there is more capital still in some of the fund that we still have in the platform. Over time, the numbers are going to come down because when we go out and raise the successor fund if we go out and raised $1 billion dollars, under you can only have $30 million of Morgan Stanley capital in that fund. The most important benchmark in the Investment management business I say again and again is performance. To perform give you more money than you manage and you bring in new clients. Across Merchant banking and Real-Estate we were not able to main the specific firms but the performance in the scale on the left hand side of the page is a real scale. So you got a sense here of the performance across these funds in since inception. And we’ve done a good job managing money on behalf of our clients across the spectrum of strategies here. We feel like we got the right talent on the field and we’ve got top teams across all of the different platforms. Okay. I want to get to this so I leave time for questions. Going forward we’re transitioning from where were we, what did we do to what are we going to do going forward. So recap last three years revenue up 11%, pre-tax earnings up 37%, ROE up 12.5 points, assets under management up 37%, reduced capital associated with hedge fund stake that are non-strategic what are we going to do over next three years?
We’re going to grow our liquidity funds, assets under management and profitability it’s a more difficult business in the rate environment that we’re in now. Everybody knows we’re starting a transition to another rate environment so I want to continue to invest and build out the liquidity platform. We continue to expand our long only offerings continue fill in gaps we want to do as well as we did in the high yield pace in the global asset allocation space that I talked about earlier. We’re going to continue invest in distribution particularly in North America, more and better feet on the ground. We’ll continue to raise the next generation and work off our Real-Estate and Merchant banking firms. We’re going to raise follow on funds for existing strategies and we’re going to try to lever the capabilities we have over some of these platforms for new strategies. And we will continue to reduce capital resulting in higher return on equity associated with this business. When we look forward and we look at the industry, we feel like we’re positioned in the high growth areas. And this chart little bit talks about alternatives customized solutions and high alpha active management as being three of the real growth areas across Investment management going forward. We feel good about our capabilities in all of those areas and feel like we’re well positioned for growth and I’ll go through that now. Okay. Let’s look at each of those three areas and talk about where we stand.
First alternatives we have in particular in our alternative investment partners the IP business. The fund to fund business that offers web products. We have hedged fund of funds private equity fund to funds and Real-Estate fund to funds few managers who has the full product set across the fund to funds business with tenured teams and again performance that we feel like we can be proud of with our clients. Within the alternative space we’ve also clearly got the entire platform within Merchant banking and Real-Estate so for alternatives is going to be fastest growing asset class across the Investment management space before AIP and our Merchant banking Real-Estate platforms we’re well positioned. The second area of growth customized solutions. We have within AIP customized solutions business that combines all experience and traditional alternative asset classes with our ability to pair that to institutional sometimes high network individuals. So we feel like we’re well positioned with capabilities for the movement toward customized Investment management mandates. And then lastly on the active management that’s the core of what we’re doing across our long only business. And we feel like all clients are getting access to the best investment talent to exist in many of those categories. One example our global quality product which we launched rates over $1 billion within the first six months of this launch. And we have an entire team focused on global franchise and those type of strategies led by a named William Lock who again is a long tenured successful portfolio manager at Morgan Stanley.
Traditional asset management what’s the strategy going forward? We will continue to look at what we think on the right set of products for our clients and assess their needs and try to deliver that what do I mean by that? We’re not chasing hot product we don’t try to figure out what’s selling now and make sure we go out try to either add that strategy team that does that. We’re focused on asset allocation outcome oriented strategies and active management around those types of strategies. The key to doing this well is having the best investment talent and I’d walked through that before I won’t go through that again but tenure of the portfolio managers, the teams consistency of approach, sticking with the mandate not moving around on it in response to market movements very, very important in our business. And then the last piece of the puzzle traditional asset management is a distribution side. We’ve done a good job on a number of places non-U.S. distribution our partnership with MUFG U.S. side of the equation North America we need to do more and we will continue to invest there. Challenges across traditional asset management we have a number exogenous the world brings them to us movement of assets in data driven strategies it has been fair amount of that in the Investment management space, regulatory reform. We’re subject to that vocal put in place something that we already going to do in terms of capital we’re putting in funds but there is always talk of regulatory forum in different areas liquidity so we’ll see what happens there. At a low rate environment, makes it challenging in different ways one of the reasons we’re very focused on high yield is that there is a real appetite for that among investors in the rate environment like this and fee compression is still something that exists in the industry. And obviously we’re not immune from that again, we think if we have good performance across strategies that make a lot of sense for our clients, then that’s the best tonic for fee compression. Things that are specific to us, North American distribution you heard me say that I’ll leave it and organic take time. We think organic growth in Investment management is the highest risk return kind of growth. It doesn’t mean refers bringing team and if there was a business or a platform that would make sense for us that would fit into our culture that would add some bulk and some good portfolio management talent we would look at doing that. But we’re going to be very careful on doing anything other than organic and organic takes time. Okay.
Merchant banking real-estate, strategy going forward what are we doing? The current large Morgan Stanley principle positions will continue to decline as we harvest the investment and we set that exists today. We will continue to make progress on our Real-Estate investment platform. We make tremendous progress on the last few years we’ll keep moving that forward. Our new model across Merchant banking and Real-Estate we think is a very attractive financial model. Limited capital investment combined with GP related gains and then successor funds around that can provide very attractive returns on capital. And you’ve heard me emphasize this throughout the presentation as a firm, working from James we’re focused on return on capital. This is a business that we think can be a major positive there so we’re focused there on the ROE within this business. Challenges across Merchant banking and Real-Estate we have the exogenous ones volatile markets, rate environment we have a number of public positions across the different platforms. They go up and down with the market when those companies those operating companies were public.
So those are exogenous challenges outside our control for all intents and purposes. There are also things that we can control here. We want to increase the visibility of our capabilities and increase the visibility hence me here talking about it of the superior investment performance we have, with our clients, consultants, within the firm, outside the firm. We’re managing peoples’ money well here clients’ money well and we want that message to get out. We want to make sure we’re using the Morgan Stanley network everywhere we can deal sourcing targets potential investment opportunities. We do a lot of that already we want to do more. We want to scale this business. We think it fits well within Morgan Stanley and I want to be clear this business is a key part of Morgan Stanley Investment management and our Morgan Stanley overall strategy. So we want to scale it, but again, scaling this business the best way to do it successor follow-on funds, leveraging the investment talent that we have that does take time. So it tends to roll out over 18 36 months as opposed to immediate increase in financial performance. Merchant banking does fit well Merchant banking Real-Estate within the Morgan Stanley and the umbrella. Deal sourcing control and support risk management expense management we want to make sure that LPs[ph] know that they get this when they invest their money with Morgan Stanley because it’s Morgan Stanley. And one of the questions I often get so I’ll front run it here do these business exists well within Morgan Stanley in the current environment? And the answer is yes. The investment teams know that the brand is accretive, clients want to do business with Morgan Stanley you get all of the different support functions that we talk about here and as an LP you’re not paying extra for that. So these businesses can and are thriving within Morgan Stanley. Okay. I’ll wrap up here.
Where are we headed? Investment management overall coming off a strong 2013 with excellent performance and results across traditional asset management, returns in Merchant banking and real estate 30 or 40% we see the next three years as positive growth opportunity. Fee revenues will grow as we broaden our product line, increase our assets under management particularly and traditional asset management we will continue to reduce capital and when we think we can take capital down by in the neighborhood of 15% by selling hedge fund that we still have today, and monetize positions across the Merchant banking and Real-Estate space. When you put it altogether, you get a business that’s growing, but with more consistent financial growth revenue pre-tax earnings ROE our 2016 target this is more of an exit rate target as we get through 2016 $500 billion under assets under management, we think very achievable you saw us come from 220ish to 270 on the chart I showed you over the last three years $500 billion on assets under management and ROEs of 20% and consistently with that neighborhood. So that’s where we’re trying to take Investment management over the next 2.5 years.
So I’ll conclude, to be clear again, Investment management is a core and key part of Morgan Stanley. Attractive financial returns both margins on returns on capital accretive to the firm’s franchise increasingly steady and predictable performance that investors like to see that you all like to see. We’ve made a lot of progress across traditional asset management Merchant banking and Real-Estate improved investment performance enhanced product and debt increased investment returns bolstered management capabilities I can tell you much improved morale. People proud to be working within Investment management at Morgan Stanley so we’ve come a long way over the last three year and the message I’ll leave you with is we are well positioned over the next three years to continue to grow Investment management and increase its relevance and contribution to Morgan Stanley. So with that, I’m happy to take questions on any and all topics. Open up for questions.
Christian Bolu – Credit Suisse
Just curious how much of traditional Investment management is distributed through your proprietary advisor network versus wholesale or other channels?
Within the wealth management business a very important benchmark principal for us is open architecture. And our financial advisors need to know they hear it from me consistently all the time that what we are not going to do is do focus exclusively and taking care of their clients and not worry about where the product comes from. Having said that, if Investment management in Morgan Stanley has great performance across the strategies we want to make that as readily available to those advisors as possible. So that if they are working on a client from an asset allocation standpoint and they want to increase their exposure of alternatives, private equity Asia perform better than anybody else’s as is often is we want to make sure that that capability is made available that product is made available to financial advisors. So we’re working hard on that we’ve made a lot of progress on that particularly for clients that are buying above certain minimums but we want to make product more broadly available for advisors so that they can bring it down whenever they think it makes sense. Did I answer your question?
Christian Bolu – Credit Suisse
With all of the AUMs and traditional are distributed through your proprietary sales force?
No, most are institutional across the institutional landscape but classic mix of institutions there is some intermediaries sold outside of Morgan Stanley and some through Morgan Stanley Wealth Management but it’s a small percentage. But again, I think given the performance it should be more over time so ultimately that’s up to the advisor I just want to make it easily available to the advisors financial advisors to put their clients in it.
Christian Bolu – Credit Suisse
I think you merchant bank and the alternative investment side, just given some of the least strong tailwinds behind some of the publicly traded alternative asset managers at a much strong performance they had how does Morgan Stanley compete in that environment? What’s the competitive advantage of Morgan Stanley against I guess versus those peers?
I would say Christian three things, one we have great investment talent so they are managing these platforms well a lot of them are long tenured within Morgan Stanley so they are happy working there. And this is obviously well into those post poker environment so we got really good teams that we think is good as anybody in the industry and the results would support that. The second thing is the Morgan Stanley global footprint in terms of the ability to introduce clients and potential investors to these is very strong and the teams all know that and they agree with that. Morgan Stanley is a name around the world where clients feel comfortable doing business with Morgan Stanley across the full range of what we do because it is a client focused firm with a long history in that. So the brand and the asset gathering is positive and then the third thing is that a lot of things have happened within Morgan Stanley which I was talking about before, including risk management and other things can be brought to bear that are positive on the platforms that LPs are getting without getting anything extra for it. So we think it’s a positive.
Christian Bolu – Credit Suisse
May be ask you two put your old bank and couple of questions in terms of quick wondered fits very well within Morgan Stanley’s capital like strategy it’s one you advocate quite strongly for. Any thoughts of actual rates in growth in the business M&A the [inaudible] has paid handsomely in the wealth management business. Any thoughts of doing that in the investment management business?
Christian, I was asked that question roughly three 3.5 years ago and I was pretty clear that time that we had a lot to do to get the business in a position where you could successfully integrate an acquisition and as Christian said I did advise on many of these acquisitions over many years and ‘90s and the first part of the last decade. They are not easy to do there is often cultural different cultural fit between the firm you’re acquiring and the buyer. So many of them number of them worked many of them didn’t. So for me the bar is high on acquisition. Having said that, if we can add some bulks some assets bringing portfolio managers and teams and a business that fits with what we’ve got we would do that because it fits with the capital wide strategy. We want to be bigger in Investment management, we’re on our waist to do that and if we need to and what I load out here was organic. The $500 billion target in assets under management as we start to leave 2016 is just we keep doing what we’re doing. But if we can add a business, assets teams through acquisition, that fit with the existing business and we think we can integrate and bring in and part of Morgan Stanley Investment management we would do that.
Christian Bolu – Credit Suisse
Just want to add -- Hi as the most important focus for capital is to continue to increase capital returns to shareholders. So Greg obviously is focusing right thing for the firm as a whole and we’re very focused in returning capital James said in the last earnings call?
Yes, James and Ruth covered that at length in the fourth quarter earnings call. That said on a macro level when you get into the business unit which is what I was answering, if there is something that makes sense we look at it that the bar is high.
Christian Bolu – Credit Suisse
Wait for questions, maybe I’ll ask you a question on [inaudible] ahead of wealth management clearly that business has had quite strong tailwinds for quite a while now. A lot of that was market driven, cost rationalization, increase in lending, what are you seeing on the actually core advisor front in terms of competition for new advisors or taking on all losing market share to on that front?
Let me answer two sides of that one and now we’re talking about our wealth management business a lot of what’s happened over recent years was us running the business well and focusing on expense. So if you looked at last year our revenues were up $1.1 billion or $1.2 billion and our pre-tax earnings were up almost as much as that. So we have had very positive margin pretax margin expansion and a lot of that has been on the expense side of the equation there is been some revenue left but it’s actually been making sure that revenue gets converted into pretax going forward we’d love to see it be more about revenue growth. The biggest opportunity for us there is our banking and lending footprint. By the middle of next year, we will have $135 billion in deposits in business making us one of the largest banks in the country. The best thing we could do with those deposits is lend them back to our clients and we’re working hard to do that. And for us that’s the biggest potential revenue and pre-tax lift available to us. From an advisor standpoint to get over with your question, we think the recruiting environment it’s a little bit quieter than it was from a macro standpoint. But for us, we are doing a better and better job attrition has continued to come down. And the reason for that is we have gotten through a difficult technology integration. We have a new added technology within wealth management Chris Randazzo who we brought over from a major competitor and he and my operating heads are operating heads have a great strategy in place to really drive technology going forward. Our advisors know that our motto is unique. We are the only wealth management organization of size that’s not part of the big bank. They like the culture they like the environment and we would expect to have lower levels of attrition going forward now that they’ve seen what Morgan Stanley wealth management can look like as an integrated entity.
Christian Bolu – Credit Suisse
Great. I think we’re out of time. Thank you very much, Greg.
Thank you very much.
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