Pedestrians pass by Morgan Stanley headquarters in New York. The bank is planning to offer savings accounts and certificates of deposits next year to wring more profit from its wealth management clients.

Reuters
New York

Morgan Stanley, better known for underwriting bonds than for retail banking, plans to offer savings accounts and certificates of deposits next year to wring more profit from its wealth management clients, executives told Reuters.
The bank has offered checking accounts and credit cards for years, but it is launching more consumer banking products and giving brokers bonuses if clients use them.
The goal is to win more of the assets that customers keep at rivals such as JPMorgan Chase & Co or Bank of America Corp Right now, just 1% of Morgan Stanley’s more than 3.5mn wealth management clients actively use its retail banking products.
“You shouldn’t have to deal with two or three financial institutions,” said Eric Heaton, president of Morgan Stanley US Banks, in an interview with Reuters. “Just deal with us.”
Morgan Stanley has no plans to build retail bank branches, and will instead rely on its 16,000 brokers to sell the new products.
The effort may leave it looking a little more like a conventional bank, a move that regulators have been encouraging since the crisis. Its chief rival, Goldman Sachs Group, took a similar step in August, when it agreed to buy General Electric Capital Bank’s online deposit business.
The move is also likely to boost the bottom line – clients who actively use Morgan Stanley’s banking products hold on average 7% more assets at the firm than those who don’t. The annual fees that customers pay are often based on a percentage of the client’s assets at the firm.
That fee income tends to be relatively stable over time compared with many investment banking businesses. The importance of stable results was driven home for the bank’s investors last month when it released third quarter earnings that showed revenue in its bond trading business plunging 42%, excluding an accounting adjustment that investors often ignore, while revenue in its wealth unit, which includes brokerage fees, interest income, and other items, fell just 3.5%. Morgan Stanley’s fee income and commissions have been falling since the beginning of 2014, which the bank has made up for by generating more revenue from areas including lending.
After multi-billion dollar trading losses brought Morgan Stanley uncomfortably close to failure during the financial crisis, the bank agreed to buy Citigroup’s Smith Barney business in pieces starting in 2009, turning its retail brokerage business from being an afterthought into the source of about half the bank’s revenue.
Goldman, by contrast, remains much more heavily reliant on bond trading, stock underwriting, and other traditional investment banking businesses to drive its bottom line. Investors seem to be siding with Goldman Sachs now – its shares trade at about 1.15 times their book value, an accounting measure of their net value, while Morgan Stanley’s trade at about their book value. In addition to fee income, banking products offer more deposit funding for Morgan Stanley, which regulators view positively. During a financial crisis depositors are less likely than corporate bond investors and other lenders to flee when trouble is brewing in markets or at a bank. When rates rise, deposit funding is often cheaper than other forms of borrowing.
Morgan Stanley now has around $139bn of deposits in its bank unit and is aiming to get up to $200bn in the next several years. To help its effort, it has assembled a team of card and payment executives, many of who led similar businesses at Merrill Lynch.
Tom Duffy, who heads banking services within wealth management, says his product development team has more than doubled to around 34 since he joined the bank in 2011. Morgan Stanley’s overall deposits, at around $147bn, fund a much smaller portion of its balance sheet than most other banks - its deposits equal about 18% of assets, compared with more than 50% for both JPMorgan Chase and Bank of America.
Winning more client assets may not be easy, analysts noted.
“It’s a lofty goal to be the primary bank for every one of their wealth management clients,” said Glenn Schorr, an analyst with Evercore ISI.