Morgan Stanley’s third-quarter earnings showed a decline in profit due to sluggish dealmaking and smaller inflows to the wealth management division. The bank experienced a 27% drop in investment banking revenues and sluggish trading as geopolitical risk and rising interest rates impacted dealflow. The wealth management division saw a decrease in net new assets, as clients chose money market funds over wealth management portfolios. Despite the decline in profit, Morgan Stanley’s results were better than expected, though investors were disappointed by the lack of announcements regarding the CEO succession.
The market reacted negatively to Morgan Stanley’s earnings report, resulting in a 6.5% decline in the bank’s shares. Wealth management and investment banking, which have previously been sources of growth for the bank, underperformed in the quarter. Investors were particularly disappointed with the lighter-than-expected wealth management numbers and CEO James Gorman’s growth outlook. Gorman explained that the rise in interest rates influenced clients to keep a cash position of around 23% and invest in money market funds instead of participating in the market. As a result of these factors, Morgan Stanley’s profit dropped by 9% to $2.4 billion, though still better than analysts’ expectations.
Morgan Stanley’s performance in investment banking and trading was also lackluster in the third quarter. The bank experienced a decline in fixed income underwriting and a modest increase in equity trading. Gorman acknowledged the recent improvement in M&A and capital markets transactions but anticipated most of the activity to materialize in the upcoming year. The bank also set aside $134 million in provisions for credit losses, mainly driven by worsening conditions in commercial real estate. Despite the challenges faced in these areas, Morgan Stanley’s earnings report rounds out an overall positive reporting season for Wall Street’s biggest banks.
In summary, Morgan Stanley’s third-quarter earnings were impacted by lethargic dealmaking, smaller inflows to wealth management, and the lack of announcements regarding the CEO succession. Investment banking revenues and trading were also sluggish. However, the bank’s profit decline was better than expected, providing some positive results in a challenging market environment. Morgan Stanley’s performance mirrored a broader trend among Wall Street banks, which experienced a mixed bag of results in the quarter.
