Morgan Stanley a worthy competitor to BofA
Morgan Stanley and Bank of America are two of the largest investment banks in the U.S. Since the recession, their business model has evolved from being focused primarily on one or two revenue streams to significantly diversified ones.
Morgan Stanley has reduced its dependence on investment banking and sales & trading business, while wealth management business has gained revenue share - from 24% of total revenues in 2007 to 43% in 2018. On the other hand, Bank of America has transformed itself from a traditional loans-and-deposits bank mainly relying on consumer banking to a balanced bank with a sizable wealth management business - the segment revenues increased 2.5x from $7.6 billion in 2007 (11% of total revenues) to $19.3 billion in 2018 (20% of total revenues).
Trefis captures recent trends in the wealth management business for Morgan Stanley vs. Bank of America in an interactive dashboard and concludes that although Morgan Stanley's wealth management business is growing at a faster pace than Bank of America, the latter has a larger business both in terms of client assets and wealth management loans, and is also more profitable than its peer.
Although Morgan Stanley has reported lower wealth management revenues than Bank of America over the last 4 years, its revenues have grown 14% as compared to the 7% increase in Bank of America's figure.
Bank of America's wealth management business is bigger than its peer, in terms of total client assets and average wealth management loans. Its segment revenues increased from $18 billion in 2015 to $19.3 billion in 2018 (which was 13% more than Morgan Stanley's figure in 2018)
Morgan Stanley's wealth management revenues increased 10% y-o-y in 2017, mainly due to a 10% growth in wealth management loans and a 13% jump in total client assets. However, the growth rate dropped in 2018 due to a 3% decrease in total client assets. Similarly, Bank of America's wealth management revenues grew 5% in 2017, due to a 7% increase in wealth management loans followed by a 10% jump in total client assets. Thereafter, the growth rate decreased in 2018, due to lower net interest yield on wealth management loans coupled with a 6% drop in total client assets.
Moving forward, we expect Morgan Stanley's wealth management revenues to improve 0.6% and cross $17.3 billion in 2019, whereas Bank of America is expected to report $19.7 billion in the segment revenues - up 1.6%.
Our interactive dashboard for Morgan Stanley details the factors that have driven changes in revenues of Morgan Stanley's individual revenue streams over recent years along with our forecast for 20192020. Bank of America's outstanding wealth management loans in 2018 was almost 2x Morgan Stanley's figure.
Bank of America's outstanding wealth management loans were almost twice the Morgan Stanley's figure over each of the last 4 years, something we attribute to the former's ability to cross-sell its wealth management services to consumer and commercial banking clients.
Additional details regarding how the outstanding wealth management loans for Morgan Stanley and Bank of America has grown over the years are available in our interactive dashboard. As of 2018, Morgan Stanley managed client assets stood at $2.3 trillion nearly 6% less than Bank of America's $2.5 trillion.
Additional details regarding how client assets for Morgan Stanley and Bank of America has grown over the years are available in our interactive dashboard.
Although Morgan Stanley has slightly higher fees, Bank of America's Wealth Management Business Is still More Profitable than its peer.