Published On: Wed, Oct 18th, 2023

Morgan Stanley falls 10% in profit but grows in trading

Morgan Stanley falls 10% in profit but grows in trading
Morgan Stanley falls 10% in profit but grows in trading

Morgan Stanley’s Q3 Profit Falls 10%, Trading and Asset Management Show Gains

Morgan Stanley reported a 10% decline in third-quarter profit due to weakness in its investment banking division. However, it saw growth in trading and asset management revenue.

Morgan Stanley MS, +2.03% revealed that its profit for the three months ending on September 30 fell to $2.26 billion, or $1.38 per share, down from $2.49 billion, or $1.47 per share, in the same period last year.

Analysts tracked by FactSet had expected Morgan Stanley to earn $1.28 per share, while at the start of the quarter, they had anticipated earnings of $1.58 per share.

The bank reported a 1% decline in revenue, which amounted to $13.27 billion, exceeding the FactSet consensus estimate of $13.22 billion. However, the bank’s 13.5% return on average tangible common equity in the third quarter fell short of its long-term target of 20%. During a conference call with analysts, the bank projected a robust deal pipeline for mergers and acquisitions but not until 2024.

Morgan Stanley’s stock declined by 2.8% in premarket trading on Wednesday.

Chief Executive James Gorman described the market environment as mixed, stating, “Our equity and fixed-income businesses navigated markets well, and both wealth management and investment management produced higher revenues and profits year-over-year.”

Morgan Stanley’s stock had fallen 4.4% in the third quarter, reflecting the volatile period for bank stocks. Prior to Wednesday’s trades, the stock had declined by just under 10% in the past month, compared to a 1.9% drop in the S&P 500 SPX.

For the third quarter, trading revenue rose by 10% to $3.68 billion, while asset management revenue increased by 6% to $5.03 billion. Investment banking revenue, however, saw a 24% decline, totaling $1.05 billion.

Over the past month, 11 analysts reduced their profit estimates for Morgan Stanley, with only one increasing their view. UBS analyst Brennan Hawken downgraded Morgan Stanley to neutral from buy last week, lowering the price target to $84 from $110. Hawken cited challenges such as deposit sorting, intense competition for talent, and a challenging revenue environment.

The average rating among 26 analysts covering Morgan Stanley is overweight. The bank is currently undergoing a leadership transition, with Chief Executive James Gorman planning to step down by next May. Potential successors at the bank include Andy Saperstein, who heads up wealth management; Ted Pick, who runs capital markets; and Dan Simkowitz, head of investment management.

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