Morgan Stanley recently released its third-quarter financial report, revealing a decline in profits and sluggish growth within its wealth management unit. This development sent shockwaves through the financial markets, resulting in a significant drop in the bank’s shares, marking the most substantial decrease in over three years.
During the third quarter, the bank reported net income of $2.4 billion, reflecting a 9% decrease compared to the same period in the previous year. While this figure slightly exceeded analysts’ expectations, which had estimated $2.3 billion, it signifies a challenging period for the bank.
One of the most significant areas of concern was the performance of Morgan Stanley’s investment banking division. Investment banking revenues fell by nearly 30% compared to the previous year, raising eyebrows among investors and industry observers alike. Furthermore, the wealth management segment failed to meet analysts’ projections, with revenues totaling $6.4 billion. While this represents a 5% increase from the same quarter in the previous year, it indicates a noticeable slowdown compared to the bank’s performance in recent quarters.

Morgan Stanley’s wealth management unit has been a major driver of the bank’s growth in recent years. However, the reported slowdown in revenue growth raises concerns about the future outlook for this division, especially in the face of challenges in the U.S. economy, including rising inflation and interest rates.
In a Financial Times report, it was revealed that the division managed to attract approximately $36 billion in net new assets during the quarter. While this is still a substantial figure, it represents a notable decline from the $65 billion achieved in the previous quarter. Morgan Stanley’s Chief Executive, James Gorman, acknowledged this decline and emphasized that such figures can fluctuate. Gorman, who has been at the helm of the bank for nearly 14 years, is set to step down by May 2024. The bank’s board of directors, chaired by Gorman, is in the process of selecting his successor from a pool of internal candidates, including Ted Pick, who leads the investment banking and trading division, Andy Saperstein, the head of wealth management, and Dan Simkowitz, who oversees investment management.
In discussing his upcoming departure, Gorman emphasized his willingness to leave as soon as the board deems it appropriate, stating, “I would leave at the earliest possible moment that the board feels comfortable making that decision, and I’ve made that very clear to them.”
The slump in investment banking revenues, which has persisted over the past 18 months amid an industry-wide slowdown in activity, posed a particular challenge for Morgan Stanley. Their investment banking revenues dropped by 27% year-on-year to $938 million. This contrasted with the performance of competitors like Goldman Sachs and JPMorgan Chase, which either reported modest increases or only slight declines in their investment banking revenues. Sharon Yeshaya, the Chief Financial Officer of Morgan Stanley, explained the drop in investment banking revenues as a reflection of completed transactions. She also noted that the bank continued to hire investment bankers with the expectation of a rebound in the industry, stating, “We’ve been looking forward. So, over the last 18 to 24 months, we’ve been hiring new talent in investment banking.”
Fixed-income trading revenues fell by 11% to $1.9 billion, slightly surpassing expectations, which were set at $1.8 billion. On the other hand, revenues from equity trading reached $2.5 billion, marking a 2% increase and surpassing the estimated $2.4 billion. Investment management, although Morgan Stanley’s smallest division, experienced growth in the third quarter, reporting a 14% increase in revenues to $1.3 billion. This expansion was attributed to the recent acquisition of Eaton Vance.
While Morgan Stanley’s third-quarter financial results presented several challenges and areas of concern, the bank remains a key player in the financial industry. The market will closely watch how the bank addresses these issues and navigates the changing economic landscape, especially with the impending transition in leadership as James Gorman prepares to step down.
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