Morgan Stanley Stock Slumps on Earnings. Here’s Why.

Profit at the bank slid 8% to $2.4 billion, amounting to earnings of $1.38 a share on revenue of $13.3 billion. Analysts surveyed by FactSet expected earnings of $1.31 a share on revenue of $13.2 billion.

“While the market environment remained mixed this quarter, the firm delivered solid results with an ROTCE of 13.5%,” James Gorman, chief executive at Morgan Stanley, said.

Morgan Stanley is the last of the big banks to post earnings and its results mirror peers: They show that large lenders—
JPMorgan Chase
(JPM),
Bank of America
(BAC), and
Goldman Sachs,
for example—have been able to top expectations even with signs of a slowing economy.

Investment banking revenue was down 27% from the year-ago quarter, reflecting fewer deal completions. But even with that weakness, Morgan Stanley executives have sounded positive about what’s ahead for 2024..

“We are seeing increasing evidence of M&A and underwriting calendars that are building, and while we expect momentum to continue this year, given the fourth quarter has some seasonal considerations we expect most of the activity to materialize in 2024,” Gorman said on a call with analysts.

Morgan Stanley’s closet competitor, Goldman Sachs (GS), addressed a rebound in deal-making on a call with analysts on Tuesday.

“I can’t tell you when the environment will get better, but I do believe that the capital markets and banking environment will improve in the coming years. History tells us that it doesn’t stay closed for multiple years at a time,” said David Solomon, chief executive at Goldman.

At Morgan Stanley, trading results were mixed. The bank had a 2% increase in equity trading revenue and fixed income revenue slid 11%.

Wealth management was a relative bright spot. The bank posted a 5% gain in revenue, driven by higher average asset levels. But the unit had only a $36 billion increase in net new assets, which was well below the rate of recent quarters. So far this year, the division has had $235 billion in net new assets.

“These numbers will bounce around and in any quarterly period, there are always idiosyncratic things,” Gorman said.

Beyond earnings, Morgan Stanley also fielded questions about who will be the next CEO; in May, Gorman said he would be handing over the job over the next 12 months. Contenders mentioned are Dan Simkowitz, head of investment management, and co-Presidents Ted Pick and Andy Saperstein, who respectively run capital markets and wealth management at the bank.

While there wasn’t much in the way of definitive answers, Gorman made it clear the process was under way.

“We’re getting close. I’m certainly not a barrier to it,” Gorman said. “I’d like to get on with it and I’ll help in the transition as executive chairman for a bit, and this place will go forth and thrive.”

Write to Carleton English at [email protected]