U.S. banks see wealth management boom

U.S. banks see wealth management boom on borrowing, new assets NEW YORK Reuters - Big U.S. banks put in another impressive performance in the third quarter, buoyed by record levels of new money flowing into accounts and demand from clients to borrow against their investment portfolios.

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

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

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

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

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

Morgan Stanley's wealth management business reported revenues of $5.935 billion in 2015, an increase of 28% over last year. Wealth management loan balances reached $121 billion, up 33% 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 investment accounts have grown in value, so do loans.

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

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

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

Morgan Stanley, which gets approximately half of its revenues from wealth management, said net new assets rose in the last quarter of the third quarter to $135 billion against the prior quarter. The acquisition of a group of retirement advisers helped in part by the growth of four fees-based assets brought $43 billion to the bank.

Bank of America reported that, over the past year it has brought more than $112 billion in net new assets from its Global Wealth Management business model.

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

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