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Morgan Stanley to Divest Wealth Biz - Analyst Blog

Thursday, November 08, 2012

Morgan Stanley (MS) has initiated strategic review – a process that generally concludes with divestment– of its Indian private wealth management division. The review is a part of the company’s global strategy to do away with its underperforming wealth management operations.

In 2008, Morgan Stanley launched its private wealth management services for the high net worth investors in India. At present, the division manages nearly $1 billion (including loans) of wealth. The opportunity was lucrative at that time, given the economic boom.

However, at present the market has become highly competitive. Also, high staff expenses and frail markets have badly affected the margins of companies including Morgan Stanley. Further, the stringent regulatory landscape is fencing further growth opportunities by putting a limit to product offerings.

All these abovementioned factors prompted Morgan Stanley to undertake a review of this division. Though the divestiture looks almost certain, there is no word on the possible sale price. Generally, private wealth management units are sold at 2%–3% premium on the amount of assets managed. The potential bidders for this unit are expected to be a couple of Swiss private banks that do not have presence on the Indian soil.

Presently, Morgan Stanley is not the only company withdrawing from Asia and other emerging economies. In October, Netherlands-based ING Groep NV (ING) announced the sale of its Malaysian insurance business to Asian insurance giant AIA Group Ltd for nearly $1.7 billion (€1.3 billion).

Apart from this, ING also announced the divestiture of its insurance business, pension and financial planning divisions in Hong Kong and Macau, as well as its life insurance operations in Thailand to Pacific Century Group for a total of $2.14 billion (€1.64 billion) in cash.

Further, in March, HSBC Holdings Plc. (HBC) announced the sale of its general insurance businesses in Asia and Latin America for $914 million. The company is divesting its general insurance units in Hong Kong, Singapore, Argentina and Mexico to Australia's QBE Insurance Group Ltd. and France-based AXA Group in two separate deals.

We believe Morgan Stanley’s strategy to do away with the non-core operations will go a long way in streamlining its operations. Moreover, the Federal Reserve’s new proposed financial regulations, which require banks to maintain a robust liquidity, are pressurizing banks to improve capital positions. Thus, selling off unprofitable/non-core units and focusing on main business is becoming the need of the hour.

Currently, Morgan Stanley retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.
 


 
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