Morgan Stanley
Wealth Management for the Win
After writing up Goldman Sachs earlier this month, it only felt appropriate to look at Morgan Stanley. It would be hard to find two companies that are so similar in terms of their financials. In 2025, both earned $16B in net income for their common shareholders and their market capitalizations today are almost identical at about $280B.
The difference is that 2/3rds of Goldman’s revenue comes from investment banking and markets whereas this is only about half of Morgan Stanley’s revenue. The other half of Morgan Stanley’s revenue comes from asset management, which has doubled in the last seven years implying a 10% CAGR. See here for select historical financials.
An investment in Morgan Stanley is really a bet on their asset management business continuing to grow. The competition here has only become more intense with Goldman competing aggressively for UHNW dollars and everyone from Schwab to Merrill competing for households with liquid assets in the $1-$10M range.
While I understand why investors prefer the predictability of fees from asset management to lumpy banking and markets revenues, its fairly easy for wealth management clients to move their money to another institution if they are not happy with performance in any given year. I’d assume all large wealth managers are closet index huggers with a dash of ‘alternatives’ thrown in, so its unlikely there’s much divergence in investment performance, but to the extent MS has a worse year than some of its competitors, it could be an opportunity for others to steal clients.
My current sense is Goldman has more upside from here than MS, but neither are particularly compelling at about 20x normalized earnings of $15B. If there is a correction in the broader market or another financial scare like in 2023, these would be good names to add to the portfolio in the 15x earnings range.
Notes
MS’s long term debt has increased by $150B in the last seven years to $340B today vs GS where this has increased by $50B to $276B. This does not necessarily mean much by itself but is worth pointing out.