Morgan Stanley, owner of the world's largest brokerage, hired 100 bankers to offer more products such as jumbo mortgages and structured loans to Morgan Stanley Smith Barney clients, and may quintuple their numbers by the end of 2011, a person with knowledge of the strategy said.
The firm is building a private bank to squeeze more revenue from clients and encourage them to hold deposits at the company. Morgan Stanley's wealth management group had $191 million of interest income in the first quarter, a fraction of the $1.1 billion at Bank of America Corp.'s Merrill Lynch unit. Private bankers offer loans, savings products and sometimes investment advice to a bank's wealthiest clients.
"There is always this hidden opportunity of cross-sell," said Steve Stelmach, an analyst at FBR Capital Markets in Arlington, Va. "Merrill Lynch has been successful in offering mortgage products to their retail customers, so the precedent is there."
Morgan Stanley joins Citigroup Inc. and JPMorgan Chase & Co. in trying to do more business with wealthy customers as the weak economy and new regulations make it harder to earn money from loans and investment banking. Bankers have pushed cross-selling for decades, often with little to show for it, to expand their business without having to sign up new customers.
"Every major financial firm has decided they are going to grab a piece of wealth management, whether it's private banking or advisory," said Jeanne Branthover, head of financial services practice at Boyden Global Executive Search in New York. "The combination of financial advisers working with the private bankers is becoming more common. Ten years ago, they were totally separate."
Private bankers usually get a salary and a bonus, while financial advisers' compensation is based on commissions, Branthover said.
The Federal Reserve Bank of New York Thursday approved Morgan Stanley's application to create Morgan Stanley Private Bank NA. It's headed by Cece Stewart, 52, whom Morgan Stanley hired in 2008 from Wachovia Corp., where she had risen to executive vice president from branch manager over three decades. The firm started hiring the private bankers last year.
The private bank plans to as much as triple its loan balances to between $50 billion and $60 billion by the end of 2014, said the person, who declined to be named because the plans haven't been made public.
The bank now has about $19 billion in loans largely from its previous lending efforts, which mostly focused on agency mortgages, the source said.
The private bank will also offer deposit products to clients who hold more than $1.6 trillion of assets. Morgan Stanley considered buying a banking franchise before deciding to build its own private bank in the first half of 2009, the person said.
That was the same year that Morgan Stanley formed its brokerage, which has more than 18,000 advisers, when it bought a controlling stake in the joint venture with Citigroup. Merrill Lynch, by comparison, has about 15,000 financial advisers.
JPMorgan Chase said Thursday it named Barry Sommers to lead a bid to boost the share of assets it holds for its wealthiest client to more than the current 5%.
Citigroup has hired about 15 private bankers since March and will add another 115 over the next several years, a spokesman has said.
B of A is trying to persuade its 12 million customers to move funds from rival brokers to Merrill Lynch and wants Merrill Lynch clients to transfer some of the $500 billion they have at other banks, according to a May 10 presentation.