Morgan Stanley wealth unit aims to close lending gap

Mon Dec 3, 2012 6:16pm EST
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By Lauren Tara LaCapra, Carrick Mollenkamp, Jessica Toonkel

(Reuters) - In October, Rebecca Rothstein, a Beverly Hills-based private banker to rock stars, top executives and the otherwise rich, abruptly left Morgan Stanley (MS.N: Quote) for rival Merrill Lynch.

She had spent more than a decade at Smith Barney before Morgan Stanley took control of the retail broker from Citigroup Inc (C.N: Quote), but she was getting increasingly frustrated that the firm could not lend money to clients to refinance their yachts and vacation homes, people familiar with her thinking said.

So in the couple of minutes it takes to walk from one firm to another on Wilshire Boulevard - past palm trees, a Sotheby's realty office and the Mexican restaurant El Torito Grill - Morgan Stanley lost $2.5 billion in client assets to its rival.

In wealthy enclaves across the United States, Morgan Stanley has suffered a series of defections of top advisers such as Rothstein, in part because they think the firm is weak at providing loans to private banking clients compared with rivals owned by commercial banks.

Merrill, a unit of Bank of America Corp (BAC.N: Quote), has about 600 bankers working with brokers, for example, compared with 170 bankers at Morgan Stanley. In the third quarter, Merrill reported $1.5 billion in net interest income, compared with $410 million for Morgan Stanley's wealth unit.

"It's built right into the system at Merrill in terms of people and technology," said Mark Albers, a former manager at Merrill, who is now president of the wealth management recruiting firm Albers & Associates Consulting.

Albers said advisers at both firms have told him that lending is "significantly stronger and significantly easier" at Merrill than it is at Morgan Stanley.

Morgan Stanley spokesman James Wiggins said its wealth management unit offers competitive specialized loans through its tailored lending program. Although its loan book is not as big as rivals, the firm is working to build up that area and sees it as a significant growth opportunity, he said.   Continued...

Rebecca Rothstein addresses the National Press Club in Washington, D.C. on November 12, 2012, in this handout photo. REUTERS/Noel St. John/Handout