Morgan Stanley is making its second
divestment in European wealth management, as it refocuses on
wealthier client segments of $10 million plus in net assets. This
time it is selling its private banking operations in Spain and
asking an aggressive premium for them.

The US investment bank’s wealth business in Spain has assets under
management (AuM) estimated to be as high as €8 billion ($10.2
billion). The company is believed to be pressing for €500 million
to 600 million for the business – or a premium to AuM of roughly 7
percent.

At the start of 2007, Morgan Stanley sold its Quilter private
client brokerage unit in the UK to Citigroup. Citi paid $450
million, or a premium of 4 percent, for the $11 billion of Quilter
AuM.

Morgan Stanley originally bought its Spanish business from Spanish
broker Asesores Bursátiles for €300 million in 1999, and it is
understood that a significant part of the business is still based
around stock trading.

The New York-based bank no longer considers its Spanish wealth
portfolio to be strategically important and feels its Spanish
business does not have enough ultra high net worth clients.
Officials also stress that the decision to divest was taken well
before the current global subprime-linked credit crisis broke out.
Nonetheless, the business represents a prize for domestic and
foreign competitors wanting to build in the high-growth Spanish
wealth management sector, according to Madrid bankers. New research
from consultancy McKinsey shows that, with a growth rate of 23
percent, private banking in Iberia expanded more rapidly than all
other European markets in 2006.

Potential buyers

Among the bidders are Banco Bilbao Vizcaya Argentaria (BBVA), which
has formed a consortium with savings banks La Caixa and Caja
Madrid. BNP Paribas is reportedly also interested, while Banco
Sabadell has ruled itself out of the contest.

In Madrid, speculation has also suggested that Barclays, the
biggest foreign wealth manager in Spain, could be interested in the
Morgan Stanley operations at the right price, in order to
consolidate its leadership position. The UK-based bank had €16
billion under management in Spain at the end of 2005, according to
Tatum, a consultancy that tracks the Spanish wealth management
industry. Deutsche Bank, which is known to be looking for new
acquisitions, could also be interested. It had some €6.5 billion
under management in Spain at year-end 2005, so a Morgan Stanley
deal would double its operations in the country. UBS trails with
€5.6 billion so a deal would, similarly, add significantly to its
market share.

Spanish private banking is dominated by the Santander group, which
had €28 billion under management by year-end 2005; its Banif wealth
arm manages €28.9 billion. BBVA lags its rival, with €15.9 billion,
which perhaps explains why it is making a bid.

Gorman promotion

In what is seen as a reward for turning around Morgan Stanley’s
wealth operations, its wealth head, James Gorman, has just been
appointed joint co-president of the bank. This follows the
resignation of Zoe Cruz, the current president. Gorman will handle
the Wealth Management and Asset Management divisions, while joint
co-president Walid Chammah will head up the company’s Institutional
Securities division. Both report to chairman and CEO John
Mack.

Turning around wealth involved aggressive cost controls. The broker
head count had been cut to 8,340 as of the end of August, from
9,526 in the quarter before Gorman took over.

In a statement, Mack said: “James has led a dramatic turnaround of
our wealth management group – revitalising its culture and
transforming it into one of most dynamic competitors in the
industry. He also has played a key role in better integrating our
securities businesses and, most recently, has begun to play a key
role in developing strategy for the entire firm.”

The big challenge for Gorman, after improving the business in the
US, is how he will grow in foreign markets to achieve real global
clout, particularly among ultra high net worth individuals.

According to Morgan Stanley, the amount of assets in $1
million-plus accounts rose 22 percent from the year-ago third
quarter, while assets below $100,000 fell 14 percent during that
period.

Morgan Stanley also named Michael Armstrong as its global head of
private wealth management in October and in a memo said that “it’s
time to dramatically step up our efforts around the globe”.