Morgan Stanley's top Asia banker targets US$10 billion in revenue
[HONG KONG] Last month, as the US-China trade war heated up, Morgan Stanley's co-president Dan Simkowitz made a discreet visit to Beijing. It was the first time a senior US executive from the bank had stepped foot in China in five years, and came days after a rare board meeting in Tokyo near the Imperial Palace.
The low-key events underscore the focus the Wall Street giant is putting on Asia under recently installed chief executive officer Ted Pick. After several tough years sparked by a slump in China that hammered global banks, Morgan Stanley is regaining traction in the region.
Led by one of the deepest and longest-tenured teams of any of its rivals, Morgan Stanley posted record Asia revenue of US$7.64 billion last year, topping arch-rival Goldman Sachs for the third straight time. The bank is now eyeing US$10 billion in revenue within five years, its Asia chief Gokul Laroia said in a rare interview from his Hong Kong office.
'If you are diversified by geography and you are diversified by product, you have inherent hedges in your business,' said Laroia, who joined Simkowitz on the Beijing trip to meet with He Lifeng, the vice-premier who is also leading US trade talks. 'A combination of familiarity and confidence in the team over here is super helpful, particularly when times are tough.'
The bank is counting on a widening array of investment banking and trading initiatives across the region. A growing presence in Japan and India will likely add to a China business that's slowly recovering even as trade wars rage.
Still, the goal will be challenging. Despite investing billions, global banks have struggled to make meaningful profits on the Chinese mainland, squeezed by a sluggish economy and powerful local rivals. At the same time, the bank faces fierce competition in Japan, where many global firms saw sliding revenue last year. In India, fees are generally low and the regulatory landscape is hard to navigate.
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Laroia, a 30-year veteran of Morgan Stanley and co-head of global equities, is in charge of executing the Asia strategy. He joins a long list of top executives at the New York bank who cut their teeth in the region.
At the top is Pick, a New Yorker who worked in Korea for about six months early in his career. At a town hall last year after becoming CEO, Pick joked that the two people he's travelled most with in his life are his wife and Laroia. In the past two decades, Pick has made more than 60 trips to Asia. Simkowitz, who oversees the global institutional securities business, worked in Tokyo and Hong Kong in the 1990s, while Mo Assomull, co-head of investment banking, grew up in Hong Kong where he first joined the bank.
Laroia is part of the bank's 12-member top executive body. His close ties to the top have been instrumental in helping the firm's bankers in Asia secure swift approvals and push key deals across the line, according to sources familiar with the matter, who asked not to be identified. He's led businesses across investment banking and sales and trading, making him one of the most well-rounded regional CEOs among global banks in Asia.
During the bank's April earnings call, Pick gave a rare shout-out to Laroia, pointing to Asia's equities performance and its contribution to global results. Like its biggest US rivals, Morgan Stanley's stocks division is the backbone of Asia, and its momentum is pushing Greater China's share to about half of regional revenue. Overall, Japan delivers 20 to 25 per cent, while India makes up roughly 10 per cent, a source familiar with the matter said. In the first quarter, the bank's revenue from Asia topped Goldman's by 27 per cent, public filings show.
Morgan Stanley declined to comment on contributions by geography.
While activity is picking up, Wall Street firms have gone through tough years following China's financial opening at the start of the decade. Since late 2022, Morgan Stanley has slashed more than 120 Asia investment banking jobs – many of them China-focused – as overall Asia revenue fell before rebounding in 2024, according to sources familiar with the matter.
Now, fresh China-US tension has again fuelled investor caution, imperilling growth prospects for most investment banks.
'The geopolitical dynamic is a complicated one,' said Laroia. 'Our role is to make sure that the business that we are doing in China is the risk that we are comfortable managing.'
To confront the challenges in China, Laroia draws on challenges from navigating five major economic meltdowns, including the Asian financial turmoil and the dot-com bust, Sars, the global financial crisis and the Covid-19 pandemic.
He tapped that experience earlier this year as US President Donald Trump's tariff shock caused Chinese stocks to plummet. Laroia kept in close phone contact with a leading hedge fund in London. He advised sticking with China, but to cut long-dated investments and avoid complex positions to preserve liquidity, according to the US$10 billion portfolio manager, who asked not to be identified.
Better access
The long-time client said that the bank has generally provided better access to borrowable Chinese shares, citing one instance when its prime brokerage unit offered twice as many as rivals for short bets. This allows the bank to charge premiums in illiquid markets, the hedge fund manager said.
Morgan Stanley has made a deliberate push to broaden its product suite across businesses in China to counter the deals slump. Its onshore units have secured multiple licenses from derivatives to principal trading and research in the last few years.
'The sales and trading business continues to grow because there's a very broad cross section of global investors and increasingly a rapidly growing pool of local capital that is trading these markets more actively than they have traded in the past,' Laroia said.
Morgan Stanley is also counting on Japan for growth, as the economy emerges from decades of stagnation. The Tokyo board meeting was the first in the region in 14 years. Much of the discussion centred on regional goals and expansion, underscoring Asia's importance to the bank's strategy, a source familiar said.
The firm has deepened its 17-year partnership with Mitsubishi UFJ Financial Group (MUFG), its largest shareholder. Beyond banking and trading, it merged research with MUFG to compete with local firms and expanded mid- and small-cap Tokyo stock coverage by two-thirds to more than 500 names. New growth levers include a tie-up with MUFG in foreign exchange and equities and a push into private credit.
Still, hiring in Japan's booming finance sector is a headache, with fierce competition and talent shortages driving up pay.
In India, where Laroia was born, the firm has launched foreign exchange capabilities to help investors trade and hedge currencies. It was an early mover in a special economic zone – known as Gift City – designed to attract global clients seeking tax and regulatory clarity when trading Indian securities.
Wealth business
It also faces competition from Goldman, JPMorgan Chase and others, who are all ramping up in India, chasing deals and expanding corporate lending and flow business. Despite a surge in deals, investment banking in India remains a relatively low-margin business, prompting the bank to be selective in taking on fee-paying clients.
While it has a big ultra-high-net-worth business in Hong Kong and Singapore, Morgan Stanley has yet to enter other core markets such as Japan and India, and it's unclear if it will leverage its US mass-wealth model there.
Asset management has also lagged, as the firm only started ramping up in 2023, hiring Mike Levin from Goldman to lead Asia distribution. Last year's departure of Chin Chou, the founder of its Asia private equity arm, has also left a leadership gap as global investors pulled back from China.
For Laroia, the volatility and tumult comes with the territory in Asia, leading to plenty of tough moments and pressure. His once black hair has turned grey and white over the years, and he finds golf helps him stay grounded. With a handicap of just eight, he's good enough to beat a few of his clients if chooses to.
'The only time I shout is on a golf course, when I miss or hit a bad shot,' said Laroia, who plays at the Hong Kong Golf Club and Discovery Bay. 'That's how you release your stress.' BLOOMBERG
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