According to a Reuters report, Morgan Stanley’s (MS) Indian private wealth management division has attracted potential bidders. In Nov 2012, the company had initiated strategic review – a process that generally concludes with divestment – of the unit.
Among the potential bidders are a few Indian financial services firms such as L&T Finance Holdings along with foreign firms like UK-based Standard Chartered Plc (SCBFF). Yet, the formal bidding process is expected to start very soon. Moreover, private wealth management units are generally sold at 2%–3% premium on the amount of assets managed.
In 2008, Morgan Stanley launched its private wealth management services for the high net worth investors in India. At present, the division manages nearly $1 billion (including loans) of wealth. The opportunity was lucrative at that time, given the economic boom.
However, at present, the market has become highly competitive. Also, high staff expenses and frail markets have badly affected the margins of companies including Morgan Stanley. Further, the stringent regulatory landscape is fencing further growth opportunities by putting a limit to product offerings. All these abovementioned factors have prompted Morgan Stanley to divest this division.
Morgan Stanley is not the only company withdrawing from Asia and other emerging economies. Last year, many financial firms, including Netherlands-based ING Groep NV (ING) and UK-based HSBC Holdings Plc (HBC) have announced divestitures of respective divisions from these regions.
We believe that Morgan Stanley’s strategy to do away with the non-core operations will go a long way in improving its efficiency. Moreover, the Federal Reserve’s new proposed financial regulations, which require banks to maintain a robust liquidity, are pressurizing banks to improve capital positions. Thus, selling off unprofitable/non-core units and focusing on main business is becoming the need of the hour.
Currently, Morgan Stanley retains a Zacks Rank #3 (Hold).
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