Morgan Stanley: ripeness is all The post-crisis strategy at Morgan Stanley is bearing some fruit. It is not yet ripe. That will come only when profitability improves. Boss James Gorman has shrunk reliance on the volatile fixed income business, the main source of pain during the crisis, and built up a wealth management arm by buying the Smith Barney brokerage from Citigroup. With US monetary policy uncertain, fixed income trading has been a tough business. That was still true for Morgan Stanley. Revenues from fixed income and commodities trading fell 14 per cent year over year in the fourth quarter (excluding changes to the value of its own debt), but they represented only 9 per cent of the total. At Goldman Sachs, which has held to its trading roots, fixed income revenue declines were in line with those at Morgan Stanley, but represented 20 per cent of revenue. At Morgan Stanley's global wealth management business, revenue rose 12 per cent, and the pre-tax margin was 19 per cent - up from a year ago, but still way behind the 27 per cent margin at the more seasoned wealth-management business at Bank of America, which includes Merrill Lynch and US Trust. But Morgan Stanley encouraged investors by raising its margin target to between 22 and 25 per cent by the fourth quarter of 2015, up from 20 to 22 per cent. The boost will come largely from what the bank can make lending the uninvested deposits in its brokerage accounts. Fourth-quarter profits, however, were almost entirely wiped out by a big boost to legal reserves. The level of future litigation expenses remains an uncertainty for shareholders. Return on equity for the year was about 7 per cent excluding litigation costs. This trails Goldman's 11 per cent and, more importantly, the bank's own cost of capital. Morgan is targeting ROE of more than 10 per cent based on repositioning the fixed income business, higher margins in wealth management, expense cuts and capital return. Morgan Stanley's shares jumped 4 per cent on Friday, and rose 65 per cent last year. At $33 they trade at a premium to tangible book. Targets are welcome - they keep management accountable. But unless the bank makes real progress towards them soon, its shares look overripe.