Wirehouses have been running a good business lending money to investors, but they have now turned it into a great one. Securities-based lending is rising across the industry and the figures are eye-popping. For instance, Morgan Stanley’s securities-based lending rose 25% this year to $39.4 bn, while mortgage lending climbed 13% to $25.7 bn. The business is good not just for the revenue it creates directly, but also in the way it keeps client assets at the firm, with MS CEO James Gorman commenting that “The lending side provides a lot of stickiness with relationships”.
FINSUM: This seems like a great business, so long as it is kept in check. Loans against client’s portfolios can turn south quickly.