Private banking: Morgan Stanley’s Gorman faces up to his latest challenge

January 08, 2008

Since the beginning of 2006, Morgan Stanley’s private wealth management business has been streamlined into a slicker, more profitable business. Total client assets have increased from $624 billion to $734 billion, and quarterly profits before tax have increased from $20 million to $287 million. Helen Avery talks to Morgan Stanley’s co-president, president and chief operating officer of global wealth management, James Gorman, on how he turned Morgan Stanley’s wealth management business around, the firm’s plans for the future, and his thoughts on the private banking industry.

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"We’re happy to make necessary investments to experience growth, even if it means somewhat lower profitability, and so will certainly consider acquisitions"
James Gorman, Morgan Stanley

Q: When you arrived at Morgan Stanley from Merrill Lynch almost two years ago, the wealth management business had been neglected. What were the challenges that faced you?

There were certainly a lot of problems facing the wealth management business at the beginning of 2006. Little had been done to leverage the merger with Dean Witter in 1997 in terms of people or brand, yet there were clear opportunities to be had from having a retail business joined to an institutional business.

In addition, while other firms had readjusted their businesses after the bubble burst in 2001, Morgan Stanley had continued to have very poor financial performance. The quarter before I arrived, return on equity was just 1%, and pre-tax margin 1% for the business.

A lack of investment had meant that basic infrastructure was weak. Technology, operations, client reporting and compliance needed a total upgrade.