US banks see wealth management boom on borrowing, new assets

[NEW YORK] Big US banks' wealth management businesses put in another stellar performance in the third quarter, buoyed by record levels of new money flowing into accounts and surging demand from clients to borrow against their investment portfolios.

Morgan Stanley, JPMorgan, Bank of America each reported double-digit growth in wealth management loan balances and revenues this week.

While the Covid-19 pandemic devastated large chunks of the economy and put millions out of work, extraordinary government measures aimed at mitigating the economic blow have also boosted the fortunes of the wealthy by pushing down interest rates and driving a massive stock market rally.

Global financial wealth soared to a record high of US$250 trillion in 2020, according to a June report by Boston Consulting Group.

That has increased demand for money managers, increased the value of assets managed by these brokerages, and made it more appealing for customers to borrow.

"At the high net worth end of the spectrum, lending products have been very healthy and you're seeing that at firms like Morgan Stanley where wealth management loan balances are up over 30 per cent year over year," said Devin Ryan, an analyst at JMP Securities.

Morgan Stanley's wealth management business reported revenues of US$5.935 billion, up 28 per cent from last year. Wealth management loan balances reached US$121 billion, up 33 per cent year-on-year, mostly from clients taking out mortgages and borrowing against their investments.

A booming area of lending for wealth management brokerages, so-called securities based loans or lines of credit, allow clients to borrow up to a certain percent of the value of their investment accounts to spend on anything except more securities.

As those investment accounts have grown in value, so have loans.

Bank of America's Merrill Lynch Wealth Management reported record revenues of US$4.5 billion, up 19 per cent over last year, while loan balances grew 10 per cent to top US$133 billion.

At JPMorgan's asset and wealth management business, revenues 21 per cent to US$4.3 billion, while average loans rose 20 per cent from last year.

Both Bank of America and JPMorgan said the primary driver of loan growth was securities based loans, followed by mortgages and custom loans.

Morgan Stanley, which gets around half of its revenues from wealth management, said net new assets rose by 89 per cent to US$135 billion in the third quarter from the prior quarter, helped in part by the acquisition of a group of retirement advisers that brought US$43 billion in fee-based assets to the bank.

Bank of America reported that, over the past year, it has brought on more than US$112 billion in net new assets across its global wealth management business.

Merrill Lynch also added 4,200 net new households, the bank said.

JPMorgan does not break out net new assets for its asset and wealth management business.

REUTERS