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    A higher global oil price will help Russia pay for its war

    The bonanza could not last for ever. After reaching record volumes in recent months, despite Western embargoes, dwindling domestic production and the risks of navigating the Black Sea, Russia’s crude shipments fell to 3m barrels a day (b/d) in August, some 800,000 lower than the April-May average and below pre-war levels. They are likely to remain sub-par. On September 5th Russia said it would extend a “voluntary” 300,000 b/d cut first announced for August to the end of 2023 (the baseline for this reduction is unclear).Sagging exports deprive the Kremlin of treasure just when it wants to replenish its military arsenal. In August federal-tax revenues from crude sales dropped to just $8bn, down from $10bn in July and $13bn in August last year, according to estimates by Viktor Kurilov of Rystad Energy, a consultancy (see chart). The rouble, which was for a long time another symbol of Russian resilience, has crashed to near 100 to the dollar, its cheapest since the invasion. Both slumps have injected urgency into Russia’s efforts to earn more money from every drop of crude it pumps out. Three types of tactics feature in its new playbook.image: The EconomistThe first—chasing higher prices for the fewer barrels it sells—has faced difficulties. Between January and August, the price of Urals, Russia’s main grade of crude, averaged $59 a barrel, down from $83 in the first eight months of last year. In large part this was because of a lower global oil price, which fell from $104 to $81 over the period. But Western embargoes, which make it easier for other buyers, such as China and India, to negotiate probably played a part, too. So did the g7’s “price cap”, which bans Western shippers and insurers from facilitating Russian crude exports unless the fuel is sold below $60 a barrel.More recently, though, the strategy of chasing higher prices has seen some success. Expectations of peaking interest rates in America, as well as production cuts both by Russia and Saudi Arabia, have helped lift the global oil price, which rose above $90 a barrel for the first time this year on September 5th. This benefits Russia, which in recent months has built a “grey” fleet of tankers—often ageing ships owned by obscure intermediaries in the Gulf, Hong Kong or Turkey—and a state-backed insurance system that insulates much of its distribution network from the price cap’s effects. It is also shipping less from the Black Sea and more from its Baltic and far-eastern ports, where breaches of sanctions are harder to detect. Since mid-August Urals has been trading above $70 a barrel.The West is unlikely to push for stricter enforcement of its price cap: it wants to keep Russian oil flowing to avoid supply shortfalls later this year if the global economy rebounds. Therefore gains in the price of Urals look secure, even if it will be difficult to persuade customers to accept smaller discounts relative to the global oil price. India insists that the rising price of Urals has eroded the grade’s competitive edge, especially compared with Gulf crude. This is a little disingenuous. Urals continues to trade at a solid $7 rebate to the cheapest grade of Saudi crude, reckons Kpler, a data firm, although it is a superior blend. India’s obduracy hints that it probably has the upper hand in talks.As Russia sells less crude, it is also trying to sell more of its premium refined oil—its second tactic for keeping proceeds afloat. To do so, it can process more crude through its refineries by mobilising idle capacity, which Kpler estimates at 10% of the total. Analysts reckon it will postpone much of the maintenance scheduled for this month to autumn next year. And it is maximising yields of diesel, a highly profitable product, to the detriment of jet fuel. In August the country exported more such “clean” products than during the same month in any of the past five years.The third way that Russia is trying to compensate for lower crude shipments is by developing new channels to distribute its oil. Exporters are discreetly cranking up piped flows to those European countries that still can, and do, buy Russian oil: namely, the Czech Republic and Hungary. Analysts expect this to continue until 2025, by when the Czech pipeline operator should have capacity to take more crude from a conduit linking it to Italy.Russia is also starting to send more cargoes through the Arctic, which could cut the cost of shipments to China. The route is 30-45% shorter than those departing from the Baltic and Barents seas. Kpler data show an eightfold rise in Russian crude tankers using this path in 2023. Navigating the Arctic is possible only in the summer and early autumn but Russia, betting on global warming, is targeting year-round sailing by 2025. That may come too late to support the war effort. Much of what will decide Russia’s export receipts in the interim—starting with the state of the global economy—remains beyond its control. ■ More

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    EU lists Alphabet, Amazon, Meta and three other tech giants as ‘gatekeepers’ under strict competition rules

    The European Commission on Wednesday listed six tech giants — Alphabet, Amazon, Apple, Meta, Microsoft and ByteDance — as gatekeepers under its new Digital Markets Act.
    The Digital Markets Act is a groundbreaking piece of legislation that aims to encourage greater competition in digital markets and ensure greater choice for consumers.
    The rules could lead to some big changes for the platforms of Big Tech companies.

    The logos of Google, Apple, Facebook, Amazon and Microsoft displayed on a mobile phone with an EU flag shown in the background.
    Justin Tallis | AFP via Getty Images

    The European Commission on Wednesday said it designated six tech giants as “gatekeepers” under its new Digital Markets Act — a strict set of rules that could shake up the business models of large digital platforms.
    Amazon, Alphabet, Apple, Microsoft, Meta and ByteDance will have six months to bring their core platform services into compliance with the obligations laid out in the EU’s DMA, the commission, which is the executive arm of the European Union, said in a press release.

    The commission said it deems Amazon, Apple, Alphabet, Meta, Microsoft and China’s ByteDance as “gatekeepers.” The term refers to massive internet platforms which the EU views are restricting access to core platform services, such as online search, advertising, and messaging and communications.
    The bloc also opened five new market investigations into U.S. tech giants Microsoft and Apple, evaluating whether some of the companies’ services should or should not qualify as gatekeepers.
    As part of these probes, the EU will study submissions from Microsoft and Apple. The EU believes that Microsoft’s Bing, Edge and Microsoft Advertising platforms and Apple’s iMessage service meet the bar to be considered gatekeepers. Microsoft and Apple argue otherwise.
    The EU will also investigate whether Apple’s iPadOS, the operating system behind the Cupertino, California, tech giant’s line of iPad tablets, should be pronounced as a gatekeeper, even though the European Commission says it does not meet the criteria.
    The Digital Markets Act is a groundbreaking new EU law that aims to clamp down on anti-competitive practices from big tech players. Smaller internet firms and other businesses have complained of being hurt by these companies’ business practices.

    For instance, the mobile operating systems of Google and Apple — which are the primary mobile OS platforms worldwide — charge a 30% fee for in-app purchases, which companies including Spotify and Epic Games have claimed are too high.
    Apple said it remains “very concerned” about the privacy and data security risks that the Digital Markets Act poses for its users. The company has said that the DMA could lead to weakened security for its iMessage platform — the EU wants Apple to make it easier for iMessage to work with rival messaging services, such as WhatsApp.
    “Our focus will be on how we mitigate these impacts and continue to deliver the very best products and services to our European customers,” an Apple spokesperson said in an emailed statement to CNBC on Wednesday. 
    Notably, the EU also designated ByteDance as a gatekeeper. Its social media platform TikTok has come under greater scrutiny globally, with regulators fearing its growing popularity and its potential for spreading disinformation to a young audience.
    EU lawmakers have also raised concerns about the prospect of influence from Beijing over TikTok, including the possibility that government authorities could use the app to spy on users. More

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    Fed’s Collins says policymakers can ‘proceed cautiously’ on future rate hikes

    Boston Federal Reserve President Susan Collins on Wednesday advocated a patient approach to policymaking.
    However, she noted that if the improvement in inflation data is fleeting, “further tightening could be warranted.”

    Federal Reserve Bank of Boston President Susan Collins stands behind the Jackson Lake Lodge in Jackson Hole, where the Kansas City Fed holds its annual economic symposium, in Wyoming, August 24, 2023.
    Ann Saphir | Reuters

    Boston Federal Reserve President Susan Collins on Wednesday advocated a patient approach to policymaking while saying she needs more evidence to convince her that inflation has been tamed.
    In remarks that aligned with sentiment from other key central bankers, Collins said the Fed may be “near or even at the peak” for interest rates.

    However, she noted that more increases could be needed depending on how the data shakes out from here.
    “Overall, we are well positioned to proceed cautiously in this uncertain economic environment, recognizing the risks while remaining resolute and data-dependent, with the flexibility to adjust as conditions warrant,” Collins said in prepared remarks for a speech in Boston.
    Those sentiments mesh with recent statements from Fed Chair Jerome Powell and Governor Christopher Waller. Both also supported the patient approach while cautioning that they view recent positive developments on inflation with caution and are ready to approve additional rate hikes if needed.
    In a CNBC interview on Tuesday, Waller contended the Fed can “proceed carefully” on policy while noting that it had been “burned twice before” in the past few years on inflation that appeared to be slowing but then turned around.
    In her speech, Collins also noted some good news on inflation, as the Fed’s preferred gauge rose just 0.2% in July while wage growth also seems to have slowed.

    However, she cautioned that “it is difficult to extract the signal from the noise in the data.” If the improvement is fleeting, “further tightening could be warranted,” she said.
    “There are promising developments, but given the continued strength in demand, my view is that it is just too early to take the recent improvements as evidence that inflation is on a sustained path back to 2%,” said Collins, who is a nonvoting member this year on the rate-setting Federal Open Market Committee. Collins will vote again in 2025.
    Collins also spoke on the lags with which Fed policy is thought to work.
    Generally, economists believe it takes a year to a year and a half for rate hikes to seep through the economy. However, Collins said that Covid-related factors and the general strength of household and corporate balance sheets could lengthen those lags, calling for more caution on policy.
    “The goal is an orderly slowdown that better aligns demand with supply, which is essential to ensure that inflation is on a sustainable trajectory back to target,” she said.
    Market pricing points to a strong likelihood that the Fed will not raise rates at its Sept. 19-20 policy meeting, according to CME Group data. However, it’s a close call for the Oct. 31-Nov. 1, with traders assigning about a 43% probability of one last increase. More

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    Stocks making the biggest moves premarket: Enbridge, Roku, Gitlab and more

    The Roku app on a television in Hastings-On-Hudson, New York, US, on Tuesday, July 25, 2023.
    Tiffany Hagler-Geard | Bloomberg | Getty Images

    Check out the companies making headlines in premarket trading on Wednesday.
    Roku — The streaming stock jumped 12.5% after announcing plans to lay off 10% of its staff. Roku also lifted its third-quarter revenue guidance, saying it now expects revenue to range between $835 million and $875 million, versus prior guidance of $815 million. Along with the workforce reductions, Roku said it plans to consolidate office space and review its content slate to trim expenses.

    Zscaler — The cloud security company lost 1.2% after reporting better-than-expecting earnings in its fiscal fourth quarter and strong current-quarter guidance. Zscaler posted adjusted earnings of 64 cents per share while analysts polled by LSEG, formerly known as Refinitiv, expected 49 cents. Revenue also topped consensus by $25 million, coming in at $455 million. Additionally, the cybersecurity company said earnings and revenue should come in ahead of what analysts anticipate in the current quarter.
    Enbridge, Dominion Energy — Enbridge shares lost 7.1% premarket after Dominion, which is down 1.1%, said Tuesday it would sell its three natural gas distribution companies to the pipeline operator for $9.4 billion.
    ResMed — Shares added 2% after Needham upgraded the medtech device company to buy from hold. ResMed, which makes CPAP devices for sleep apnea, is down 30% in the third quarter over concerns about the potential impact of weight-loss drugs on the demand for its devices.
    Gitlab — Shares of the technology platform jumped 6.5% in premarket trading following a strong second-quarter report postmarket Tuesday. GitLab posted adjusted earnings of 1 cent per share on $140 million in revenue, while analysts polled by LSEG anticipated a loss of 3 cents per share and revenue of $130 million. The company’s current-quarter revenue outlook beat analyst expectations.
    Toast — Shares of the restaurant tech stock added 3.8% after UBS upgraded shares to buy from neutral in a Wednesday note, citing improved potential for quarterly net new additions as well as margin expansion.

    Asana — The work management stock fell 5.7% despite a strong report and outlook. Asana posted an adjusted loss of 4 cents per share on revenue of $162.5 million, while analysts polled by LSEG anticipated a loss of 11 cents per share on $158 million in revenue. It also raised its full-year guidance to an expected loss of 39 to 43 cents per share, lower than a previously expected loss of 50 to 55 cents per share. 
    Southwest Airlines — Shares of the Dallas-based carrier fell more than 4% after Southwest said August bookings were on the “lower-end” of expectations. Southwest expects third-quarter revenue per average seat mile to come in at the low end of its previous guidance, adding that fuel costs have risen.
    C3.ai — The artificial intelligence software company rose 1.5% ahead of its earnings due after the close Wednesday. Analysts expect an adjusted loss of 12 cents per share on $73.8 million in revenue in the second quarter, and an adjusted loss of 4 cents per share on $78 million in revenue in the third.
    Novo Nordisk — Shares of the pharmaceutical giant gained 0.8% premarket. The Danish company launched its Wegovy weight loss drug in the U.K. on Monday, advancing the drug’s rollout in Europe despite supply constraints.
    AeroVironment — Shares of the unmanned aircraft systems maker rose 15.8% after AeroVironment beat analysts’ expectations in its fiscal first quarter. AeroVironment posted adjusted earnings of $1 per share on revenue of $152 million, while analysts polled by LSEG called for earnings of 26 cents per share on revenue of $129 million.
    — CNBC’s Sam Subin, Michelle Fox Theobald and Jesse Pound contributed reporting. More

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    Treasury yield jump is not ‘death to equities,’ BofA’s Savita Subramanian says

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    The latest jump in Treasury yields is not “death to equities,” BofA Securities’ Savita Subramanian told CNBC’s “Fast Money” on Tuesday.
    In fact, Subramanian sees the bond move as a positive signal — rather than an ominous sign for the economy.

    “Companies are refocusing on efficiency and productivity rather than juicing up earnings through leverage buybacks and cheap financing costs,” the firm’s head of equity and quantitative strategy said. “Companies are finally focused on efficiency and they have new tools. They have AI [artificial intelligence]. They have automation.”
    Subramanian describes herself as having the most positive view on stocks since the 2008 financial crisis, saying that productivity will drive the next leg of the bull market.
    “We’re past this experiment of QE [quantitative easing] and zero interest rates and negative real rates and all of this really kind of unnerving stuff that has been hard to allow us to actually value equities appropriately,” she said. “Maybe we don’t see as strong of returns from here, but we see more real returns.”
    In May, Subramanian hiked her S&P 500 year-end target by 7.5% to 4,300, with a range as high as 4,600. On Tuesday, the index closed at 4,496.83. The S&P is now up 17% year to date.
    “Companies have actually gotten very disciplined about leverage,” Subramanian said. “That’s the lesson that everybody learned in ’08 and even consumers have gotten disciplined.”

    She also finds industrials, energy and financials as sectors that should withstand the higher rates. “These are companies that were denied capital for the last 10 years and have gotten very, very lean and disciplined and now are at a better position to handle a higher interest rate environment,” Subramanian said.
    Even though she believes the corporate America has learned to do more with less, Subramanian suggests stocks won’t go up in a straight line.
    “I don’t think it’s just gravy forever. But I do think we are at a point where we have some visibility with what the Fed is going to do,” Subramanian said. “They’ve already done a lot of the hard work. We are at 5% on short rates. I think we should be happy about that because that means we have some … latitude to ease our way in the next downturn.”
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    Stocks making the biggest moves after hours: GitLab, Zscaler, AeroVironment and more

    People celebrate the GitLab initial public offering at the Nasdaq, Oct. 14, 2021.
    Source: Nasdaq

    Check out the companies making headlines in after-hours trading.
    Zscaler — The cloud security stock slipped 1% even after a better-than-expected report for its fiscal fourth quarter and strong current-quarter guidance. Zscaler reported adjusted earnings of 64 cents per share while analysts polled by LSEG, formerly known as Refinitiv, expected 49 cents. Revenue also topped consensus by $25 million, coming in at $455 million. Additionally, the company said earnings and revenue should come in ahead of what analysts anticipate for the current quarter.

    GitLab — The technology platform jumped 4% following a strong second-quarter report and current-quarter guidance. GitLab posted adjusted earnings of 1 cent per share on $140 million in revenue. Meanwhile, analysts polled by LSEG anticipated a loss of 3 cents per share and revenue of $130 million. The company’s current-quarter revenue outlook was also better than analysts’ forecast.
    Gogo — The broadband stock advanced 3.5% after the company announced the approval of a share repurchase program of up to $50 million.
    Asana — The work management stock slipped 2.8% despite a strong report and outlook. Asana posted a loss of 4 cents per share on revenue of $162 million, while analysts polled by LSEG anticipated a loss of 11 cents per share and $158 million in revenue.
    AeroVironment — Shares added nearly 12% after the maker of unmanned aircraft systems beat analysts’ expectations in its fiscal first quarter. AeroVironment posted adjusted earnings of $1 per share on revenue of $152 million. Analysts polled by LSEG called for earnings of 26 cents per share and revenue of $129 million.
    — CNBC’s Darla Mercado contributed reporting. More

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    Stocks making the biggest moves midday: Halliburton, Warner Bros. Discovery, Oracle and more

    In this photo illustration, the Warner Bros. Discovery logo is displayed on a smartphone screen.
    Rafael Henrique | SOPA Images | Lightrocket | Getty Images

    Occidental Petroleum, Halliburton, EOG Resources — Shares of oil and gas companies were higher Tuesday after Saudi Arabia earlier extended its one million barrel per day voluntary crude oil production cut until the end of the year. Occidental Petroleum gained about 2.5%. Halliburton added 2.7% and EOG Resources rose 1.8%. The cut, which led oil prices higher during the day, adds to other voluntary crude output declines that some members of OPEC have put in place until the end of 2024.
    Oracle — The software stock climbed 2.5% on the back of an upgrade to overweight from equal weight by Barclays. The firm said the company’s cloud business should be helped by artificial intelligence.

    Airbnb — Shares rose 7.2% on the back of S&P Dow Jones Indices’ Friday announcement that the stock would join the S&P 500 starting Sept. 18. The S&P 500 is widely tracked by large index funds, which could create buying pressure on Airbnb’s stock in the weeks ahead.
    Blackstone — Shares of the asset management company gained 3.6% on news that the stock will join the S&P 500 before the open on Sept. 18, as part of a quarterly rebalance for S&P Indices.
    Warner Bros. Discovery — The media stock added 0.7% during Tuesday’s trading session after Warner Bros. said it still expects to hit its net leverage target, despite taking a hit of $300 million to $500 million in its adjusted earnings before interest, taxes, depreciation and amortization. That puts its adjusted earnings in the full-year range of $10.5 billion to $11 billion. Warner Bros. said its adjusted full-year expectation assumes the financial effect of the writers and actors strikes will persist through the end of the year.
    NextGen Healthcare — Shares of the health-care company popped 6.3% Tuesday following a Bloomberg report Monday that the company was in late-stage talks with potential acquirer Thoma Bravo.
    Brady — The manufacturing stock gained 11.4% after the company reported quarterly results. Brady posted an adjusted $1.04 in profit per share for its fiscal fourth quarter, while analysts polled by FactSet forecast 93 cents.

    PulteGroup, Lennar — Homebuilder stocks took a breather Tuesday. The industry has been on fire in 2023, propelled by a shortage of homes for sale. PulteGroup and Lennar fell during the day’s trading session, losing 5.7% and 4.9%, respectively.
    — CNBC’s Brian Evans, Alex Harring and Hakyung Kim contributed reporting. More

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    The $100trn battle for the world’s wealthiest people

    The uber-rich hire all kinds of people to make their lives easier. Landscapers maintain gardens, housekeepers tidy homes, nannies raise children. Yet perhaps no role is as important as that of the wealth manager, who is hired to protect capital.These advisers are scattered across the globe in cities such as Geneva and New York, and are employed as fiduciaries, meaning they are required to act in the interest of their clients. As such, they become privy to the intimate lives of the rich and famous, who must expose their secrets so that advice may be offered on, say, the inheritance of a child born of an extramarital affair. Advisers also help families allocate investments, stash cash in boltholes, minimise tax bills, plan for retirement, arrange to pass down their vast wealth and follow unusual wishes. A Singapore-based manager recalls being told to invest a “double-digit” percentage of a family’s wealth in “bloodstock horses”—steeds bred especially for racing—a term he hurriedly looked up after the meeting.For decades, wealth management was a niche service, looked down upon by the rest of finance. Now it is the most attractive business in the industry. Capital and liquidity requirements set after the global financial crisis of 2007-09 have made running balance-sheet-heavy businesses, such as lending or trading, difficult and expensive. By comparison, doling out wealth advice requires almost no capital. Margins for firms that achieve scale are typically around 25%. Clients stick around, meaning that revenues are predictable. Competition has crushed profits in other formerly lucrative asset-management businesses, such as mutual funds. And whereas the pools of assets managed by BlackRock and Vanguard, the index- and exchange-traded-fund giants, are huge, they collect a fraction of a penny on every dollar invested. A standard fee for a wealth manager is 1% of a client’s assets, annually.Wealth management is all the more appealing because of how quickly it is expanding. Global economic growth has been decent enough over the past two decades, at more than 3% a year. Yet it has been left in the dust by growth in wealth. Between 2000 and 2020 it rose from $160trn, or four times global output, to $510trn, or six times output. Although much of this is tied up in property and other assets, the pool of liquid assets is still vast, making up a quarter of the total. Bain, a consultancy, estimates that it will almost double, from just over $130trn to almost $230trn by 2030—meaning that a $100trn prize is up for grabs. They anticipate the boom will help lift global wealth-management revenues from $255bn to $510bn.image: The EconomistIt will be fuelled by geography, demography and technology. The biggest managers are attempting to cover ever more of the globe as dynastic wealth is created in Asian and Latin American markets. Baby-boomers are the last generation that can rely on defined-benefit pensions for their retirement; more people will have to take decisions about how their own wealth will support them. Meanwhile, software is streamlining the bureaucracy that once waylaid wealth managers, allowing them to serve more clients at lower cost, and helping firms automate the acquisition of new ones. These gains will allow big banks to serve the merely rich as well as the uber-wealthy. Firms are already climbing down the rungs of the wealth ladder, from ultra-high-net-worth and high-net-worth, who have millions of dollars to invest, into the lives of those with just $100,000 or so.Markus Habbel of Bain sees a comparison to the booming luxury-goods industry. Handbags were once prized for their exclusivity as much as their beauty, but have become ubiquitous on social media, with influencers touting Bottega Veneta pouches and Hermès bags. “Think about Louis Vuitton or Gucci. They have basically the same clients as [wealth managers] target and they increased from 40m [customers] 40 years ago to 400m now,” he notes. Upper-crust buyers have not been put off.Which firms will grab the $100trn prize? For the moment, wealth management is fragmented. Local banks, such as btg in Brazil, have large shares of domestic markets. Regional champions dominate in hubs, including Bank of Singapore and dbs in Asia. In America the masses are served by specialist firms such as Edward Jones, a retail-wealth-mananagement outfit in which advisers are paid based on commissions for selling funds. Only a handful of institutions compete on a truly global scale. These include Goldman Sachs and JPMorgan Chase. But the two biggest are Morgan Stanley and a new-look ubs, which has just absorbed Credit Suisse, its old domestic rival. After acquiring a handful of smaller wealth-management firms over the past decade, Morgan Stanley now oversees around $6trn in wealth assets. After its merger, ubs now oversees $5.5trn.To the victorThis patchwork is unlikely to last. “The industry is heading in a winner-takes-all direction,” predicts Mr Habbel, as it becomes “very much about scale, about technology and about global reach”. Jennifer Piepszak, an executive at JPMorgan, has reported that her firm’s takeover of First Republic, a bank for the well-heeled that failed in May, represents a “meaningful acceleration” of its wealth-management ambitions. Citigroup has poached Andy Sieg, head of wealth management at Bank of America, in an effort to revamp its offering. In 2021 Vanguard purchased “Just Invest”, a wealth-technology company.ubs and Morgan Stanley have grander ambitions. The firms’ strategies reflect their contrasting backgrounds and may, ultimately, end up in a clash. Morgan Stanley competes around the world but is dominant in America, and is focusing on wealth services for the masses, as shown by its purchase of e*trade, a brokerage platform, in 2020. James Gorman, the bank’s boss, has said that if the firm keeps growing new assets by around 5% a year, its current growth rate, it would oversee $20trn in a decade or so.This would be built on Morgan Stanley’s existing scale. In 2009 the bank agreed to acquire Smith Barney, Citi’s wealth-management arm, for $13.5bn, which helped boost margins to the low teens from 2% or so in the years before the financial crisis. Today they are around 27%, reflecting the use of tech to move into advising the merely rich. Andy Saperstein, head of the wealth-management division, points to the acquisition of Solium, a small stock-plan-administration firm, which Morgan Stanley purchased for just $900m in 2019, as crucial for building a strong client-referral machine. “No one was looking at the stock-plan-administration companies because they didn’t make any money,” he says. But these firms “had access to a huge customer base and [clients] were constantly checking to see when the equity was going to vest, what it was worth and when they would have access to it.”ubs is employing a more old-school approach, albeit with a global twist. Having taken over its domestic rival, the Swiss bank has a once-in-a-generation chance to cement a lead in places where Credit Suisse flourished, such as Brazil and South-East Asia. Deft execution of the merger would make the firm a front-runner in almost every corner of the globe. Thus, for now at least, the new-look ubs will focus more on geographic breadth than the merely rich.In differing ways, both Morgan Stanley and ubs are seeking even greater scale. When clients hire a wealth manager they tend to want one of two things. Sometimes it is help with a decision “when the cost of making a bad choice is high”, says Mr Saperstein, such as working out how to save for retirement or a child’s education. Other times it is something exclusively available, such as access to investments unobtainable through a regular brokerage account.Being able to offer clients access to private funds or assets will probably become increasingly important for wealth managers. Greater scale means greater bargaining power when negotiating with private-markets firms to secure exclusive deals, such as private funds for customers or lower fees. Younger generations, which will soon be inheriting wealth, are expected to demand more environmentally and socially conscious options, including those that do not just screen out oil companies, but focus on investing in, say, clean energy. A decade ago a client would tend to follow their wealth adviser if he or she moved to a new firm. Exclusive funds make such a switch more difficult.The winner-takes-all trend may be accelerated by artificial intelligence (ai), on which bigger firms with bigger technology budgets already have a head start. There are three kinds of tools that ai could be used to create. The first take a firm’s proprietary information, such as asset-allocation recommendations or research reports, and spit out information that advisers can use to help their clients. Attempts to build such “enterprise” tools are common, since they are the easiest to produce and pose few regulatory difficulties.WealthbotsThe second type of tool would be trained on client information rather than companies’ proprietary data, perhaps even listening in on conversations between advisers and clients. Such a tool could then summarise information and create automatic actions for advisers, reminding them to send details to clients or follow up about certain issues. The third kind of tool is the most aspirational. It is an execution tool, which would allow advisers to speak aloud requests, such as purchasing units in a fund or carrying out a foreign-exchange transaction, and have a firm’s systems automatically execute that transaction on their behalf, saving time.It will take money to make money, then. The biggest wealth managers already have more substantial margins, access to products their clients want and a head start on the technology that might put them even further ahead. “We are a growth company now,” claims Mr Saperstein of Morgan Stanley, a sentence that has been rarely uttered about a bank in the past 15 years. “We are just getting started.”Yet the two giants atop the industry are both going through periods of transition. ubs has barely begun the open-heart surgery that is required when merging two large banks. Meanwhile, Mr Gorman, architect of Morgan Stanley’s wealth strategy, will retire some time in the next nine months. The succession race between Mr Saperstein, Ted Pick and Dan Simkowitz, two other executives, is already under way. Either firm could falter. Although the two are chasing different strategies, it is surely only a matter of time before they clash. ubs is on an American hiring spree; Morgan Stanley is eyeing expansion in some global markets, including Japan.And despite the advantages offered by scale, smaller wealth-management firms will be difficult to dislodge entirely. Lots of different outfits have a foothold in the industry, from customer-directed brokerage platforms like Charles Schwab, which also offer their richest customers independent advice from a fiduciary, to asset-management firms, such as Fidelity and Vanguard, which have millions of customers invested in their funds, who might seek out wealth-management advice. When Willie Sutton, a dapper thief also known as Slick Willie who died in 1980, was asked why he decided to rob banks, he replied that it was simply “because that is where the money is”. This is also a useful aphorism to explain strategy on Wall Street, as firms race to take advantage of the $100trn opportunity in wealth management. Once the business was a sleepy, unsophisticated corner of finance. Now it is the industry’s future. ■ More