Oct 18 (Reuters) – Morgan Stanley (MS.N)’s third-quarter earnings showed a hit from dormant dealmaking and shares fell 6.5% with investors also disappointed by thin inflows into its wealth management division and no announcements on CEO succession. .
The bank saw a 27% decline in investment banking revenues compared to the previous year and trading slowed as deal flow was affected when geopolitical risks rose and the Federal Reserve aggressively raised interest rates. Morgan Stanley underperformed the market, with global investment banking fees falling 17% in the quarter according to Dealogic.
Net new assets in wealth management shrank to $35.7 billion from $64.8 billion the previous year.
“The road to growth looks like it will be more bumpy than many of us expected,” said Brian Jacobsen, chief economist at Annex Wealth Management, which includes Morgan Stanley stocks in some of its portfolios.
Specifically, Jacobsen pointed to the lighter-than-expected wealth management numbers and growth outlook for Gorman.
“The market has been disappointed with wealth management and investment banking, divisions that have been a tailwind for Morgan Stanley,” said Jason Weir, chief investment officer at Albion Financial Group.
He added that the wealth division and trading unit were affected by the rise in interest rates, as clients chose to invest in money market funds instead of placing them in wealth management portfolios.
“When people have the option of making a 4% or 5% return by doing nothing, they won’t trade the market,” James Gorman, CEO of Morgan Stanley, told investors. He said clients maintained a cash position of about 23%, which he expected to decline as interest rates decline over the coming years.
The bank’s profits fell about 9% to $2.4 billion, or $1.38 per diluted share, a smaller decline than analysts expected. Analysts had expected $1.28 per share, according to LSEG IBES data.
Including Wednesday’s performance, Morgan Stanley shares are down 12% so far this year. The S&P 500 Banking Index (.SPXBK) fell 11%.
Kenneth Lyons, director of research at CFRA Research, on Wednesday lowered the bank’s 12-month price target by $6 to $90 per share, but maintained a “buy” rating.
Analysts at Evercore complained about the lack of news about the long-awaited CEO succession, which they said was “a mistake by the board as more time would only increase anxiety and division between the parties.”
CEO James Gorman, who has run the Wall Street giant since 2010, announced in May that he would step down within a year. He said on Wednesday that the bank was close to making an announcement.
The strongest candidates are co-chairmen Ted Beck and Andy Saperstein, respectively, heads of institutional securities, which includes investment banking, trading and wealth management, while Dan Simkowitz, head of asset management, is also being considered, Reuters reported, citing A. source.
Investment banking services
Gorman said that although he has seen a recent improvement in mergers, acquisitions and capital markets transactions, he expects most of the activity to come next year.
Morgan Stanley’s revenue from fixed income underwriting has declined even as competitors in the sector have grown. Chief Financial Officer Sharon Yeshaya said the bank could not be compared with its competitors because it took into account capital allocation rather than just fees in debt transactions.
Trading was also quiet, with equities trading up 2% and fixed income down 11%. The CEO said the results of each unit will not be a factor in selecting the next CEO.
Morgan Stanley also set aside $134 million in provisions for credit losses, up from $35 million in the same quarter last year, driven by deteriorating conditions in commercial real estate. Part of the growth was a provision to cover losses on one specific, undisclosed loan.
The results cap a largely upbeat reporting season for Wall Street’s largest banks, which have benefited from higher income from interest payments.
The profits of its competitor Goldman Sachs also fell less than expected in the third quarter.
(Reporting by Manya Saini, Noor Zainab Hussain and Niket Nishant in Bengaluru and Tatiana Bautzer, Sinead Caro, Saeed Azhar and Carolina Mandel in New York – Preparing by Mohammed for the Arabic Bulletin – Editing by Mohammed Al Yamani) Editing by Megan Davis, Lanan Nguyen, Shaunak Dasgupta and Nick Ziminski
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Niket Nishant reports on breaking news and quarterly earnings of Wall Street’s biggest banks, card companies, fintech startups and asset managers. It also covers the largest IPOs on US stock exchanges, late-stage venture capital funding along with news and regulatory developments in the cryptocurrency industry. His writing appears in the Finance, Business, Markets and Future of Money sections of the site. He did his post graduation from Indian Institute of Journalism and New Media (IIJNM), Bengaluru.
Tatiana Bautzer is an American banking correspondent for Reuters in New York. She previously covered banking in Brazil, breaking news on major global corporate deals, IPOs and bankruptcies. I have also looked into corruption scandals in Brazilian conglomerates and business disputes between billionaires. Before joining Reuters in 2015, Bautzer worked at the business magazines Exame and Istoe Dinheiro and the newspapers Valor Economico and O Estado de S. Paulo. She previously worked as an international correspondent for Valor Economico in Washington, D.C., where she covered multilateral institutions and trade. Bautzer holds a bachelor’s degree in journalism and an MBA from the University of São Paulo. Contact: +646-2397968
Manya Saini reports on prominent publicly listed US financial companies including Wall Street’s largest banks, card companies, asset managers and fintech companies. It also covers late-stage venture capital funding, IPOs on US exchanges along with news and regulatory developments in the cryptocurrency industry. Her work typically appears in the Finance, Markets, Business and Future of Money sections of the site. Contact: 9958867986
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