Record wealth management revenue helped Morgan Stanley partially offset a sharp decline in its investment bank, allowing it to beat its fourth-quarter earnings forecast.
Inclusive, Morgan Stanley It reported a 40 percent year-over-year decline in net income to $2.2 billion, but Tuesday’s results for earnings of $1.26 per share beat analyst estimates of $1.19.
The numbers also highlighted the impact of CEO James Gorman’s diversification efforts in wealth and asset management. So far, amid tough markets, it has only partially succeeded in providing a counterbalance to the profits of high-cyclical investment banks.
But investors welcomed the approach, which helped open a stock market valuation gap with longtime rival Goldman Sachs, which You also mentioned earnings Tuesday.
Morgan Stanley shares rose more than 7 percent in morning trading.
The company’s results included $133 million in funding for about 1,800 jobs, roughly 2 to 3 percent of the company’s workforce, which the bank achieved late last year. Chief Financial Officer Sharon Yishia said he does not expect more layoffs unless the economy deteriorates. “We are comfortable with our position,” she added.
The investment banking business had another challenging quarter, as Morgan Stanley’s revenue fell 49 percent year-on-year to $1.25 billion, in line with analyst estimates of $1.2 billion. Competitors JPMorgan Chase, Bank of America and Citigroup reported on Friday that investment banking revenue in the fourth quarter More than half from a year ago.
The drop highlighted the difference from 2021, when Morgan Stanley and its rivals earned revenue advising on mergers and acquisitions and new stock market listings. This activity slows dramatically in 2022.
Revenue at wealth management, which includes online trading platform ETrade, rose 6 percent to more than $6.6 billion. But investment management, including Eaton Vance after the money manager’s acquisition by Morgan Stanley in 2021, has been hit by downturns in markets that have reduced assets under management. Revenue fell 17 percent to $1.5 billion but beat analyst estimates of $1.3 billion.
“As we head into 2023, we do so with quiet confidence, knowing that we have a field of vision with the solidity of our wealth management and investment businesses,” Gorman said on a conference call with analysts. “I feel good about where the whole package is.”
Analysts at UBS described “fundamental trends as encouraging” and opined that “resilient wealth management” meant that Morgan Stanley was “kicking the bottom line”.
Trading results were much weaker than analysts expected, with net revenue of $3.6 billion. Fixed-income trading had its best year in a decade, but stock numbers slumped due to an unsatisfactory comparison with 2021, when the bank posted a mark of market gains. In comparison, JPMorgan’s business revenue increased by 7 percent, and Citi’s revenue also increased by 7 percent 18 percent.
Gorman and Wishaya highlighted the bank’s normal capital ratio of 15.3 percent, which they said gives the bank the flexibility to continue share buybacks, increase dividends and take advantage of opportunities once the economy improves. “When the markets pick up, we’ll benefit from the growth,” Gorman said on a conference call with analysts. “It’s a great place to be.”
The CEO also said the improvement in margins at Wealth Management, which was 29.2 percent in the fourth quarter excluding merger expenses, is close to the company’s target of 30 percent. That helped the unit generate $6.6 billion in pre-tax profit in 2022. In the long term, Gorman said, the company seeks to increase client assets, which are $5.5 trillion at the moment, by $1 trillion every three years.
Gorman said he was “very confident” in the economic outlook and expected to be US Federal Reserve To stop raising interest rates later this year. “When the Fed pauses, underwriting activity will pick up.”