Morgan Stanleys Wealth Management Unit Posts Record Earnings

Morgan Stanley’s Wealth Management Unit Posts Record Earnings

Record income from wealth management helped Morgan Stanley partially offset a sharp decline at its investment bank, allowing the company to beat earnings expectations for the fourth quarter.

Overall, Morgan Stanley reported a 40 percent year-over-year fall in net income to $2.2 billion, but Tuesday’s earnings of $1.26 per share beat analyst estimates of $1.19 Dollar.

The numbers also highlighted the impact of Chief Executive James Gorman’s efforts to focus on wealth and wealth management. So far, he has only partially succeeded in counterbalancing the highly cyclical earnings of investment banking in difficult markets.

But investors have welcomed the approach and helped open a valuation gap in equity markets against longtime rival Goldman Sachs, which also reported earnings on Tuesday.

Morgan Stanley shares were up more than 7 percent in morning trade.

The company’s results include $133 million to fund about 1,800 job cuts, about 2 to 3 percent of the company’s workforce, that the bank made late last year. CFO Sharon Yeshaya said no further layoffs were expected unless the economy worsened. “We’re happy with our position,” she added.

Investment banking had another challenging quarter, with Morgan Stanley’s revenue falling 49 percent year over year to $1.25 billion, in line with analyst estimates of $1.2 billion. Competitors JPMorgan Chase, Bank of America and Citigroup reported Friday that investment banking revenues more than halved in the most recent quarter from a year earlier.

The drop underscored the difference from 2021, when Morgan Stanley and peers generated revenue from M&A advice and IPOs. This activity has slowed dramatically in 2022.

Revenue in wealth management, which includes online trading platform ETrade, rose 6 percent to more than $6.6 billion. But investment management, including Eaton Vance after Morgan Stanley acquired the wealth manager in 2021, was hit by falling markets that reduced assets under management. Revenue fell 17 percent to $1.5 billion but beat analyst estimates of $1.3 billion.

“As we approach 2023, we do so with calm confidence, recognizing that we have the resilience of our wealth and investment management businesses in mind,” Gorman said when speaking to analysts. “I have a good feeling about where the overall package is.”

Analysts at UBS called the “core trends encouraging” and said “robust wealth management” means Morgan Stanley is “breaking the low bar.”

Trading results were significantly weaker than analysts were expecting, with net sales of $3.6 billion. Fixed income trading had its best year in a decade, but stock numbers were dragged down by an unflattering comparison to 2021, when the bank posted mark-to-market gains. In comparison, JPMorgan’s trading revenue increased 7 percent and Citi’s also increased 18 percent.

Gorman and Yeshaya highlighted the bank’s Common Equity Tier 1 ratio of 15.3 percent, which they said gave the bank the flexibility to continue buying back shares, increasing its dividend and capitalizing on opportunities as the economy improves. “As markets recover, we will benefit from the growth,” Gorman said when speaking to analysts. “It’s a great position to be in.”

The chief executive also said that improving margins in wealth management, which reached 29.2 percent in the fourth quarter excluding integration costs, were closer to the company’s target of 30 percent. That helped the unit post pre-tax income of $6.6 billion in 2022. Long term, Gorman said the company aims to grow client assets, which currently stand at $5.5 trillion, by $1 trillion every three years.

Gorman said he is “fairly confident” about the economic outlook and expects the Federal Reserve to halt interest rate hikes some time later this year. “If the Fed pauses, underwriting activity will pick up.”