Morgan Stanley (NYSE:MS) is now ramping up its lending process to earn profit to the levels of its rivals, reports Reuters. Few years back, the bank was incompetent to provide loans due to the lack of infrastructure and expertise.
Ramping up infrastructure
In order to increase its lending process, the bank is employing hundreds of bankers, underwriters and back office staff. Also, it is reaching out to the clients more aggressively with its loan offerings along with making changes in the bonus structure to push brokers to lend more.
Lending has become a major source of revenue in the brokerage business as interest rates are zero. Morgan Stanley can earn up to $300 million extra in annual profit by lending, according to an analyst.
Morgan Stanley (NYSE:MS) is aiming towards lending 70% of its deposits by 2015, and eventually raising it to 90%.
Well behind rivals
The investment bank has generated its brokerage by advising clients on the stock and bonds while lagging behind in the lending process compared to rivals like Citigroup, which has bigger retail banking operations.
As of now, Morgan Stanley (NYSE:MS) is well behind rivals as for every one dollar of client deposit, it lends just 55 cents as loans compared to other banks who lend 70 to 80 cents in a dollar as loans. Profit margin of Morgan Stanley is less than any other big banks.
More focused on wealth management till now
“We want to be able to provide good advice on both sides of the balance sheet – not just investments but also lending,” said Shelley O’Connor, chief executive of Morgan Stanley’s private bank. The executive added that the bank needs to be the “quarterback” for what the client needs financially.
Chief executive James Gorman has focused more on wealth division of Morgan Stanley (NYSE:MS). The bank acquired Citigroup’s Smith Barney business during the financial crisis to incorporate it in its own wealth management. The process started in 2009, and is expected to get completed by 2015.
Wealth management segment contributes more than half of Morgan Stanley’s revenue. Pretax profit margin of the bank surged 18% for the first nine months of this year as against 5% for all of 2009.