Morgan Stanley SWOT and PESTLE Analysis

Strengths

1. Strong Financial Performance-The company has been doing well on the Wall Street outperforming is competitors such as Goldman Sachs. Though compared to its previous year’s performance, the company has room for improvement but industry-wise, Morgan Stanley has been doing well. For the year ending 2016, the net revenue was $34.6 billion, a little lesser than previous year’s $35.2 billion. The shareholders had a reason to reason with 1% increase on Earnings per diluted share. Moreover, the return on average common equity excluding DVA saw a rise to 8% from a 7.8% last year.

2. Expansion of digital strategies- After successful attempts at JV and M&A, the company plans to expand its digital expertise to create a stronger brand. This is being done in order to make the financial advisers more effective and efficient, attract new clients and digitize branch system and FA operations by means of predictive analytics, machine learning and leveraging digital products to strengthen client relationships. The current FA driven approach today will soon be based on predictive analytics. The organization also plans to launch an automated investing platform which provides a goal based investing approach and thematic investment overlays.

3. Top Institutional Investor for three consecutive years- The firm has been voted as the top-institutional investor for three consecutive years by Institutional Investor magazine’s 2017 All-Asia Research Survey. The survey panned whole Asia excluding Japan. For the first time in a decade, one firm had aced all 35 of the survey’s country and industry categories. The survey consisted of opinions of 1060 investment institution and their buy-side and sell-side investment professionals.

Weaknesses

1. Unsatisfied employees- Even though overall attrition rate at Morgan Stanley has come down, the top talent in the financial industry is still susceptible to poaching. When most financial institutions are on a hiring spree post Brexit, Morgan Stanley lost its former co-head of financial institution banking practice, Mr. Eric Bischof who will now work with Bank of America. The financial institution has been said to be negligent towards its employees. The classic example of this was Mr. Wyatt’s case whose problematic behaviour lead to clients losing over $50 million of their money. This was way back in 2010 but the company is still facing arbitration with Mr. Wyatt’s former clients.

2. Legal issues- The organization still deals with the ghosts of its 2015 data breach wherein one of its employees hacked and sold customer data. Morgan Stanley it has been fined $1million by the Security and Exchange Commission (SEC). SEC found it guilty of violating Regulation S-P by failing to safeguard customer information.

Opportunities

1. Sustainable investing- Sustainable, Responsible and Impact investing (SRI) is a new discipline in investing, one that has greatly interested millennials. It takes into account social, environmental and corporate governance to generate long-term financial returns and positive impact on society. The percentage of millennials who are very interested in this discipline has increased from 28% in 2015 to 38% in 2017. Morgan Stanley itself did an investor survey that showed 86& millennials and 75% of individual investors are ready for sustainable investing. To leverage this opportunity, the organization has its own institute for sustainable investing called ‘The Morgan Stanley Institute for Sustainable Investing’ which has the potential to attract investors and millennials who seek good financial returns along with creating a societal impact and a positive environment.

3. Focusing on wealth management- With rise of startups and FinTechs such as Wealthfront, big institutional investors are feeling the pinch as the former are offering inexpensive automated investment services which is likely to disrupt the business of big players such as Morgan Stanley. However, Morgan Stanley can bank on its brand name, adviser networks, financial capital and a huge client base to leverage its wealth management model. Over the years, it has a had a better Return on Capital Investment (ROIC) with Wealth Management than investment banking activities indicating that the organization should focus more on wealth management.

4. Big data analytics- By 2020, big data is expected to grow up to 40 zettabytes and with it, new technologies that can make sense of this data will also emerge. Most industries have already started leveraging the power of big data to drive better business, the investment and wealth management industry can develop ist own algorithms to provide better investment decisions in real time. These firms can use big adapt big data for optimizing business performance, client acquisition and retention as well as client advice.

4. Expand to emerging markets- As per a study done by McKinsey, emerging markets can offer annual savings of up to $400 billion through digitization for financial service providers. This opportunity is not just limited to legacy providers and Fintechs but also big investors who have the potential and means to digitize and bank on areas such as Lending and Financing, Insurance as well as Wealth and Asset Management.

Political

1. Trump Administration- US President Donald Trump, in his campaigns pitched for ‘dismantle and replace’ of the Dodd-Frank Act. This was supposed to increase credit availability and reduce regulatory burden on financial service providers. Most globally active US banks are dealing with regulatory pressure, narrow or non-transparent interpretation of complex provisions and find this environment costly, intrusive and sometimes inconsistent. However, the Trump administration has now started to focus on easing the regularity burden of financial services by making revisions to some previous rules.

2. Brexit- Even though one year has passed since Brexit, but financial services industry is still looming with uncertainty of passing of Article 50. One fear is of asset management, asset mangers are concerned that they might not be able to sell EU- registered funds to UK investors and vice-versa. Then there is Midfid (European rules for investment services). To be able to do business in UK or Europe, firms will have to play by separate rules and undergo changing regulations, which also includes hiring staff in the respective countries. However, a mass exodus from London is not expected and it may still sustain its title of global hub for asset management.

Economic

1. Difficult to navigate investment landscape- The current investment landscape is extremely difficult to navigate. Notwithstanding the recent market rally over the last 12 months, interest rates touched historic lows and many global equity markets were down by double-digits. The current macro-environment including Brexit, US elections and negative yields has forced people to look for fixed-income assets and shift from equity. Equity indices globally including European and Asian ended in negative during the last quarter of 2016. some markets went as down as 15%. many debt markets are still under pressure and the investor sentiment remains fragile.

Social

1. Changing investor buying behaviour (Millennials are different)- Institutional as well as retail customers are concerned about transparency and fee sensitivity. Firms will have to enhance customer experience and client engagement. Moreover, the new generation of investors i.e. the millennials view investing differently due to their experience with institutions and social media. Moreover, they have a general feeling of distrust in financial services due to the the sub-prime crisis and stock market volatility. They have also been found to prefer socially conscious and sustainable investment opportunities.