Within its peer group, Morgan Stanley trades at the highest premium to its tangible book value.
Although names like JPMorgan Chase (JPM 1.94%),Bank of America (BAC 2.06%), andGoldman Sachs (GS 3.30%) often come to mind when you think of the top players on Wall Street, the highest-valued large U.S. bank on the street is actually Morgan Stanley (MS 1.58%).
It wasn't always this way, and Morgan Stanley has transformed its business a lot in recent years to achieve the top spot, largely by focusing on wealth and investment management. But now Morgan Stanley is in a very enviable position.
Let's take a look at how Morgan Stanley's valuation has progressed in recent years and how the bank has become a darling of Wall Street.
Evolving the business model
One popular way to value banks is on a price-to-tangible book value (TBV) basis, where you compare a bank's market capitalization or share price to its net worth or tangible book value per share. As you can see below, Morgan Stanley's valuation has come a long way since the coronavirus pandemic began.
MS Price to Tangible Book Value. Data by YCharts.
The bank now trades at close to 240% of its TBV, which is more than Bank of America and JPMorgan. For much of the last 13 years, Morgan Stanley has traded in the middle of the pack of the Wall Street giants. What changed is the bank's progression from more of a pure-play investment banking and trading shop to one that is now equally focused on wealth and investment management.
Image source: Morgan Stanley.
Morgan Stanley has shifted from a bank that made close to three-fourths of its revenue from investment banking and trading to one that just made more than half of its revenue from wealth and investment management in 2022.
In recent years, Morgan Stanley has added scale with the monumental acquisitions of E*Trade and Eaton Vance. Even in a tough year like the one we saw in 2022, the business generated a 16% return on tangible common equity (ROTCE), which is much higher than in 2010. Morgan Stanley's long-term ROTCE ambitions of 20% are also greater than its peers'.
A big part of this is because wealth and investment management revenues are more consistent and durable, while investment banking, in particular, can be more boom-or-bust. In times like 2021, the investment banking business is great, with surging profits. But then it can fall off quickly as it did in 2022 with the size of the investment banking fee pool dropping by 50%.
This has nothing to do with Morgan Stanley's performance; it's more of a reflection of the industry. As such, pure-play investment banks do not get high multiples from the market.
Morgan Stanley's investment and wealth management business is also more fee-based and much less capital-intensive, which has become more advantageous as major Wall Street banks have faced higher regulatory capital requirements. Morgan Stanley ended 2022 with more excess capital than any of its peers, which has allowed it to return a significant amount of capital to shareholders.
Competition likely to heat up
The way that bank capital rules have changed since the Great Recession has encouraged more capital-light models because the less capital a bank holds, the higher its returns can be and the more money it can return to shareholders.
Make no mistake -- Morgan Stanley's peers have recognized this and are all trying to grow their wealth and asset management business. JPMorgan and Goldman Sachs have talked about it at length, and Citigroup is looking to become a major international wealth management player.
But Morgan Stanley has developed the scale first, and as such has built a moat that it will only look to grow more aggressively in the years ahead, so hats off to CEO James Gorman for his execution.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Bank of America and Citigroup and has the following options: long January 2024 $80 calls on Citigroup. The Motley Fool has positions in and recommends Bank of America, Goldman Sachs Group, and JPMorgan Chase. The Motley Fool has a disclosure policy.
FAQs
The top three–Morgan Stanley, Goldman Sachs, and JP Morgan–have separated from the crowd and typically perform better than the best. Now, it is more common to sort bulge bracket banks into three different tiers. Tier 1 includes the "big three" listed above. Tier 2 includes Credit Suisse, Barclays, and Deutsche Bank.
Where does Morgan Stanley rank in banks? ›
List of largest banks in the United States
| Rank | Bank name | Market capitalization (billions of US$ as of 12/31/2023) |
|---|
| 3 | Citigroup | $98.45 |
| 4 | Wells Fargo | $178.75 |
| 5 | Goldman Sachs | $125.80 |
| 6 | Morgan Stanley | $153.05 |
69 more rowsMorgan Stanley ranks 67th in the Financial System Benchmark. It is the ninth highest-ranking financial institution in the benchmark in Northern America. In comparison to other banks, it ranks 38th out of 155 assessed financial institutions.
What are the 5 biggest investment banks? ›
The largest investment banks are noted with the following:
- JPMorgan Chase.
- Goldman Sachs.
- BofA Securities.
- Morgan Stanley.
- Citigroup.
- UBS.
- Deutsche Bank.
- HSBC.
The Top 10 Most Prestigious Investment Banks for 2024:
Morgan Stanley. J.P. Morgan. Centerview Partners. Evercore.
What is the hardest investment bank to get into? ›
Ex-Goldman Sachs helping train students/recent grads to secure jobs in banking - 90% placement rate to banks like GS, UBS and JP. These are the 10 hardest investment banks to get a job at in the world🌍👇 1. JP Morgan 2. Goldman Sachs 3.
Is Morgan Stanley bank stable? ›
Morgan Stanley is listed by the Financial Stability Board as a systemically important financial institution. The Financial Stability Board is an international body that monitors3 the global financial system and is made up of members from the G20 nations.
How much money do you need for Morgan Stanley Private bank? ›
There's no minimum deposit requirement. Morgan Stanley Private Bank offers enhanced FDIC coverage. The yield is competitive.
How secure is Morgan Stanley bank? ›
Morgan Stanley is a member of SIPC. SIPC protects client net claims up to $500,000, of which up to $250,000 may be uninvested cash.
Why is Morgan Stanley so good? ›
Their resources, infrastructure and training empower firms like The Clarity Group to do what we do best on the individual level. If someone is a Morgan Stanley Financial Advisor, you know they have undergone rigorous training, have access to helpful resources and have committed to a set of core values.
The institution stands as one of the oldest and largest financial services firms in the world. As reported by the Federal Reserve in March 2023, JP Morgan Chase & Co. manages assets worth $2.8 trillion, ranking it ahead of both Goldman Sachs and Morgan Stanley in terms of size.
Who owns most of Morgan Stanley? ›
Approximately 70.82% of the company's stock is owned by Institutional Investors, 10.78% is owned by Insiders and 18.40% is owned by Public Companies and Individual Investors. The ownership structure of Morgan Stanley (MS) stock is a mix of institutional, retail and individual investors.
What is the most prestigious bank in the world? ›
Rothschild is one of the world's most prestigious investment banks—and well-known names in finance. It has a 200-year-old European heritage and a formidable mergers and acquisitions unit.
What is the best investment bank right now? ›
Best Bank for New Financial Products | Banco BTG Pactual
| Global Winners |
|---|
| Best M&A Bank | Goldman Sachs |
| Best Bank for IPOs | CITIC Securities |
| Best in Emerging Markets | Emirates NBD Capital |
| Best in Frontier Markets | Standard Chartered |
8 more rowsApr 2, 2024
BlackRock is an independently managed public company with no single majority stockholder. The PNC Financial Services Group, Inc. has a minority ownership stake in BlackRock with the remainder owned by institutional and individual investors, as well as BlackRock employees.
What is considered a tier 1 bank? ›
The Tier 1 capital ratio compares a bank's equity capital with its total risk-weighted assets (RWAs). These are a compilation of assets the bank holds that are weighted by credit risk. Under the Basel III accord, the value of a bank's Tier 1 capital must be greater than 6% of its risk-weighted assets.
What type of bank is Morgan Stanley? ›
Corporations, organizations, and governments rely on Morgan Stanley as a global leader in investment banking. We advise clients on transactions including mergers, acquisitions, restructurings, initial public offerings (IPOs), convertibles, share repurchases, debt offerings, derivatives and more.
What category is Morgan Stanley? ›
Morgan Stanley is a financial services corporation that, through its affiliates and subsidiaries, advises, and originates, trades, manages, and distributes capital for institutions, governments, and individuals.
Is Morgan Stanley a stable bank? ›
Morgan Stanley is listed by the Financial Stability Board as a systemically important financial institution. The Financial Stability Board is an international body that monitors3 the global financial system and is made up of members from the G20 nations.
