Gains for Morgan Stanley’s private banking division continue to rise; Morgan Stanley outperformed earnings estimates for the fourth quarter due in part to its record revenues from wealth management, which helped somewhat to offset a severe dip at its investment bank.
Morgan Stanley’s net income fell by 40% year over year to $2.2bn, although Tuesday’s earnings of $1.26 a share beat analysts’ projections of $1.19.
The results showed the importance of CEO James Gorman’s decision to expand the company’s services into wealth and asset management. He has only been somewhat successful in providing a counterbalance to highly cyclical investment banking profitability in challenging market conditions.
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However, the strategy has been well received by investors, which has helped to widen the company’s valuation gap with long-time rival Goldman Sachs, which also posted earnings on Tuesday.
The stock price of Morgan Stanley rose by over 7% during the morning session.
The corporation’s earnings included $133mn to cover the costs of the bank’s late-year layoff of 1,800 workers (about 2% to 3% of the total workforce). Sharon Yeshaya, the CFO, has stated that no further releases are planned until the economy worsens. She also said, “We’re comfortable with our position.”
Morgan Stanley’s revenue of $1.25 billion, down 49% year-over-year and in line with analysts’ projections of $1.2 billion, was primarily due to a challenging quarter in investment banking. Investment banking profits at JPMorgan Chase, Bank of America, and Citigroup dropped by more than half year over year in the most recent quarter, as reported on Friday.
Compared to 2021, when Morgan Stanley and its competitors drew revenue from advising on mergers and acquisitions and new stock exchange listings, the decline highlighted the disparity. In 2022, this kind of activity slowed drastically.
More than $6.6 billion was made in wealth management, which includes the online trading platform ETrade. However, investment management was impacted by collapsing markets that reduced assets under management. This included Eaton Vance after Morgan Stanley acquired the money manager in 2021. Sales were down 17% to $1.5bn, but it was still higher than the 1.3bn predicted by analysts.
Gorman stated with investors, “As we approach 2023, we do it with calm confidence because we have a line of sight with the durability of our wealth and investment management businesses.” “I’m happy with how everything is shaping up.”
UBS analysts found the “core trends positive” and concluded that Morgan Stanley was “clearing the low bar” due to “resilient wealth management.”
The net revenue of $3.6bn was significantly lower than market watchers predicted. The bank’s fixed-income trading had its strongest year in a decade, but its equity results were driven down by an unfavorable comparison with 2021 when it posted mark-to-market gains. Trading revenue at JPMorgan was up 7% yearly, while at Citi, it was up 18%.
According to Gorman and Yeshaya, the bank’s 15.3% common equity tier-one capital ratio allows it to repurchase shares, grow its dividend, and seize chances when the economy recovers. On a call with analysts, Gorman stated, “When markets improve, we will capitalize on the growth.” “You’re in an excellent spot right now.”
The CEO also noted that wealth management margins, which reached 29.2% in the fourth quarter (excluding integration charges), were getting closer to the 30% target set by the company. Thanks to that, the division was able to bring in $6.6 billion in pre-tax earnings in 2022. Over the longer run, Gorman stated the firm’s goal is to expand current client assets of $5.5tn by $1tn every three years.
Gorman expressed “pretty confident” in the economy and anticipated the Federal Reserve to halt rate hikes later this year. Financial underwriting will increase when the Fed stops raising interest rates.