Morgan Stanley signals a new openness to acquisitions

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Future of Finance
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Future of Finance

As the global financial industry struggles to shrink by jettisoning assets, Morgan Stanley’s Greg Fleming has expansion on the brain.

The investment bank executive, who oversees the firm’s wealth management franchise and its investment management business, says Morgan Stanley is open to making acquisitions to grow the $373-billion investment franchise known as Morgan Stanley Investment Management.

“If there was a business or a platform that would make sense for us, that would fit into our culture, that would add some bulk and some good portfolio management talent, we would look at doing that,” Fleming said at a recent Credit Suisse industry conference.

Fleming and the bank’s chief executive, James Gorman, have been enjoying success in the wealth management unit, which has proved the highlight of the bank’s results of late. Morgan Stanley is aiming to grow its investment management platform by a third over the next two years, to about $500 billion, and to hit returns of 20%, Fleming said.

If the focus on beefing up investment management sounds familiar, that’s because it’s straight out of the playbook Fleming used to beef up Morgan Stanley’s brokerage business during the height of the credit crisis. Gorman championed a push into wealth management when trading proved riskier during the Great Recession. (In January of 2009, Morgan Stanley agreed to a joint venture with Citigroup for a piece of Smith Barney’s wealth management business.) Morgan Stanley’s appetite for expansion in asset management comes as big banks are de-emphasizing trading, thanks in part to new US regulations such as the Volcker Rule.

Fleming added that acquisitions are not inevitable. He said that Morgan Stanley is going to be “very careful” about doing anything other than growing the investment management platform internally. But his openness to expanding the firm’s asset management business, geared toward handling stock and bond funds as well as those that invest in hedge funds and private equity vehicles, does signal a shift, coming three years after the firm suggested that neither acquisitions nor hiring talent in wealth management was an option.

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