Morgan Stanley reported a decline in third-quarter profits and slower growth at its wealth management unit, putting the bank’s shares on track for their biggest fall in more than three years.
Net income for the quarter was $2.4 billion, down 9% from a year earlier and slightly ahead of analysts’ estimates of $2.3 billion.
Investment banking
Investment banking revenues fell almost 30% from a year earlier, while wealth management revenues were below analysts’ estimates at $6.4 billion. This was up 5% from the same quarter last year but marked a slowdown from recent quarters.
The results raised concerns among investors about the outlook for Morgan Stanley’s wealth management business, which has been a key driver of growth for the bank in recent years.
The slowdown in revenue growth comes as the US economy faces several challenges, including rising inflation and interest rates.
What the Chief Executive said
According to a Financial Times report, the division brought in about $36 billion in net new assets, a metric closely followed by investors, during the quarter, down from $65 billion in the previous quarter.
- “That’s obviously below recent quarters,” chief executive James Gorman said on a call with analysts. “It’s consistent with what I’ve been saying for a long time, these numbers will bounce around.
- ”Gorman, 65, is nearing the end of his tenure as chief executive after nearly 14 years. He has promised to step down by May 2024 and the bank’s board of directors, which Gorman chairs, is selecting his successor from a trio of internal candidates who each lead one of Morgan Stanley’s three divisions: investment banking and trading boss Ted Pick, wealth management head Andy Saperstein and Dan Simkowitz, who runs investment management.
- Gorman said he “would leave at the earliest possible moment that the board feels comfortable making that decision, and I’ve made that very clear to them”.
Investment banking revenues, which have fallen over the past 18 months amid an industry-wide slowdown in activity, were particularly sluggish for Morgan Stanley, falling 27% year on year to $938 million.
This bucked a broader trend at rivals such as Goldman Sachs and JPMorgan Chase, which either reported slight increases or only modest declines.
- “When you look at the [investment banking] deals of this particular quarter, that’s based on the completed transactions,” Morgan Stanley’s chief financial officer Sharon Yeshaya told the Financial Times.
- The bank still had been hiring investment bankers in anticipation of a rebound, she said.
- “We’ve been looking forward. So, over the last 18 to 24 months, we’ve been hiring new talent in investment banking,” she said.
Fixed-income trading revenues fell 11% to $1.9 billion, beating expectations of $1.8 billion. Revenues from equity trading totalled $2.5 billion, up 2% and ahead of estimates of $2.4 billion.
Investment management, which is Morgan Stanley’s smallest division but expanded recently through the acquisition of Eaton Vance, reported a rise in revenues of 14% in the third quarter, to $1.3 billion.
