Morgan Stanley profits drop 9% after investment banking slump

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Morgan Stanley has reported a 9 per cent fall in third-quarter profits, as slower growth at the Wall Street bank’s juggernaut wealth management business was compounded by falling revenues in investment banking and trading.

The bank on Wednesday reported net income of $2.4bn for the quarter, down from $2.6bn a year earlier and slightly ahead of analysts’ estimates for $2.3bn, according to data compiled by Bloomberg.

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 almost 30 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.

“While the market environment remained mixed this quarter, the firm delivered solid results,” chief executive James Gorman said in a statement.

Gorman is nearing the end of his tenure as chief after nearly 14 years. He has promised to step down in May 2024 and the bank’s board of directors, which Gorman chairs, is selecting his successor from a trio of internal candidates who each run one of Morgan Stanley’s three divisions: Ted Pick, Andy Saperstein and Dan Simkowitz. 

Morgan Stanley’s institutional securities division, run by Pick and which comprises investment banking and trading, reported better than expected net revenues of $5.7bn.

That was still down 3 per cent year on year, as a deal drought has persisted across Wall Street. Advisory revenues in the investment banking business fell to $449mn from $693mn a year ago, as Morgan Stanley worked on fewer mergers and acquisitions that closed in the quarter.

“When you look at the [investment banking] deals of this particular quarter, that’s based on the completed transactions,” Morgan Stanley 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.”

The wealth management unit, which is run by Saperstein and has been a big growth driver for Morgan Stanley in recent years, meanwhile reported a rise in revenues to $6.4bn, up 5 per cent from the same quarter last year. That nonetheless missed estimates for $6.6bn, and marked a slowdown in the pace of growth from recent quarters.

The amount of client assets at the business declined 2 per cent quarter on quarter to $4.798tn, falling short of analysts’ forecasts for $4.88tn. 

Investment management is headed by Simkowtiz and is Morgan Stanley’s smallest division, though it expanded through the acquisition of Eaton Vance. Revenues in the third quarter rose 14 per cent to $1.3bn. That matched market expectations for $1.3bn. 

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