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MS, BAC Plan to Further Expand Wealth Management Operations

Zacks Equity Research

At the time when banks are facing lower interest rates and global economic concerns, Morgan Stanley MS and Bank of America BAC are turning toward “dull-but-reliable business of managing wealth for companies and employees.” This was reported by Reuters, citing persons familiar with the matter.

Both the companies, seeking to expand market share in wealth management businesses, currently provide different employee-benefit services to older, wealthy customers. But now, they intend to focus on corporate clients.

With this strategy, Morgan Stanley had acquired Canada-based Solium Capital earlier this year. Now, having renamed it as Shareworks, the company is planning to provide deferred compensation management, health savings accounts and student loan refinancing services.

Notably, this acquisition has made it slightly difficult for other players in the sector to compete with Morgan Stanley. The company has added nearly 200 new corporate clients since the closure of the deal in May. Jed Finn, chief operating officer of Morgan Stanley's wealth management unit, said, “It creates value for the employer, the employee and creates a new source of potential clients for us.”

Bank of America, which at present is focused on providing retirement services, intends to expand its a full suite of employee benefit products like 401(k)s, equity compensation plans and health savings accounts to existing clients in other businesses. Alastair Borthwick, global head of the bank’s commercial banking division stated, “The vast amount of wins come from existing clients.”

The company added roughly 3,000 corporate clients to its institutional retirement business last year, up almost 50% year over year. Still, only approximately 10% of Bank of America’s corporate clients use its retirement services. This, thus, provides a significant opportunity for expansion.  

Our Take

By offering wealth management services to companies, Morgan Stanley and Bank of America seek to start banking relationship with younger customers, which could help the banks going forward. This way, both the banks are trying to shift toward safer fee-driven income sources that are less dependent on performance of capital markets.

Further, as other global banks, including Wells Fargo WFC and JPMorgan JPM have moved away from providing 401(k) business services, Morgan Stanley and Bank of America are likely to be able to pick up clients these banks left behind. Nonetheless, both these firms are expected to face stiff competition from other industry players like Fidelity, Vanguard, Charles Schwab and E*Trade Financial.

But with a huge client base, Morgan Stanley and Bank of America are likely to be able to garner market share. This will enable these banks to diversify revenue base and enhance profitability.

Currently, both Morgan Stanley and Bank of America carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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