Gorman standing

17 January 2014 By Antony Currie Follow @AntonyMCurrie

Morgan Stanley’s boss offset another rough quarter that included a 1 pct return on equity by laying out targets to finally make some half-decent coin. They look reasonable enough, but the bank has failed to deliver before. Gorman’s fifth year at the helm should be make or break.

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Morgan Stanley on Jan. 17 reported fourth-quarter net income applicable to common shareholders of $192 million on revenue of $7.8 billion. The results included a $1.2 billion pre-tax charge to boost legal reserves, a $192 million tax benefit and a revenue hit of $368 million from improvement in the price of the firm’s own liabilities. Annualized return on equity for the quarter was 0.9 percent.

In addition to announcing earnings, Chief Executive James Gorman also unveiled a strategic update to show how he expects the firm to be able to earn a 9 percent return on common equity by 2015. This includes wealth management achieving a pre-tax margin between 22 percent and 25 percent, all fixed income, currency and commodities trading products earning at least their cost of capital, the firm’s bank increasing the yield on its assets to at least 1.8 percent and Morgan Stanley keeping costs under control.

The plan assumes no changes in the business environment and posits that it may be able to increase return on equity to 10 percent by returning capital to shareholders.

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