April 21, 2010 / 4:52 PM / in 8 years

UPDATE 1-Morgan Stanley brokerage steadies after stormy year

* Net new assets $5.8 bln after year of outflows

* Broker headcount flat at 18,140

(Adds details on performance targets)

By Helen Kearney

NEW YORK, April 21 (Reuters) - Morgan Stanley Smith Barney said its assets and advisers increased in the first quarter, stemming a flood of withdrawals and departures for the first time since the brokerage joint venture was formed last June.

Investment bank Morgan Stanley (MS.N), which combined its wealth management unit with Citigroup Inc’s (C.N) Smith Barney, said on Wednesday the venture took in $5.8 billion of net new money. By contrast, Morgan Stanley Smith Barney saw $4.7 billion of net withdrawals in the fourth quarter.

On a conference call with analysts, Morgan Stanley Chief Financial Officer Ruth Porat said the unit was on target for $20 billion in net new assets by the end of the year, or roughly a 1 percent increase from Dec. 31 assets.

Financial adviser headcount also stabilized at 18,140, up by five people from the fourth quarter. Morgan Stanley, like all of its big-bank rivals, saw brokers leaving in droves amid a frenzy of recruiting last year.

Morgan Stanley for the past year blamed the declines on departing Smith Barney brokers who, unsettled by the merger, fled to rivals or independent firms and took clients with them. Executives contend that trend has played out.

“There’s always angst that occurs in a combination, but when people see the the power of the platform, given our scale, it settles down,” Porat told Reuters.

Morgan Stanley said its brokerage and wealth management businesses generated revenue of $3.1 billion for the quarter, flat with the fourth quarter. Pretax profit was up 20 percent at $278 million.

Pretax profit margin was 9 percent for the quarter, up from 7 percent in the fourth quarter. Morgan Stanley says it is still aiming for a 20 percent margin by the end of 2011.

Porat expects profit improvements will come as the integration of the two firms generates cost savings and additional revenue.

The firm also shut down 25 branches during the quarter, leaving 870 at the end of March.

One sore point: Average revenue per adviser fell slightly to $685,000, which is still well below market leader Merrill Lynch. On Friday, the Bank of America Corp (BAC.N) unit reported average revenue of $807,000 for the first quarter. (Reporting by Helen Kearney; editing by Lisa Von Ahn and Andre Grenon)

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