30th November 2023

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Business Industry and Financial

Morgan Stanley profits drop 9% after investment banking slump

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Morgan Stanley has reported a drop in third-quarter profits and slower growth at its juggernaut wealth management business, putting the bank’s shares on track for their biggest fall in more than three years.

The US bank on Wednesday reported net income of $2.4bn for the quarter, down 9 per cent from a year earlier and slightly ahead of analysts’ estimates for $2.3bn, according to data compiled by Bloomberg.

Morgan Stanley’s earnings were hit by investment banking revenues falling almost 30 per cent from a year earlier. More troubling for investors was its wealth management unit, which has been a big growth driver for Morgan Stanley in recent years.

Revenues in wealth management came in below analysts’ estimates at $6.4bn. This was up 5 per cent from the same quarter last year but marked a slowdown from recent quarters.

The division brought in about $36bn in net new assets, a metric closely followed by investors, during the quarter, down from $65bn 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.”

Morgan Stanley shares closed down 6.8 per cent in New York, falling to their lowest price in more than a year after their worst day since June 2020.

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 per cent year on year to $938mn.

This bucked a broader trend at rivals such as Goldman Sachs and JPMorgan Chase, which either reported slight increases or only modest declines.

Line chart of Revenues in $bn showing Investment banking revenues remain subdued

“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 per cent to $1.9bn, beating expectations of $1.8bn. Revenues from equity trading totalled $2.5bn, up 2 per cent and also ahead of estimates for $2.4bn.

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 per cent in the third quarter, to $1.3bn.

Additional reporting by Harriet Clarfelt in New York