Morgan Stanley’s third-quarter profit decrease was smaller than expected, primarily due to the robust performance of the bank’s wealth management division, which helped counteract the impact of sluggish dealmaking.
Wealth management has become a significant revenue source for Morgan Stanley, reducing the bank’s dependence on trading and investment banking, which are closely linked to economic cycles.
CEO James Gorman expressed his satisfaction, stating, ‘While the market environment remained mixed this quarter, the firm delivered solid results. Our equity and fixed income businesses navigated markets well, and both wealth and investment management produced higher revenues.’
The bank’s net revenue from wealth management increased by nearly 5% to reach $6.4 billion. However, its net new assets declined to $35.7 billion from $64.8 billion compared to the previous year.
Morgan Stanley’s profit decreased by approximately 9%, amounting to $2.4 billion, or $1.38 per diluted share, for the third quarter ending on September 30. This figure exceeded analysts’ expectations, as they had projected earnings of $1.28 per share, according to LSEG IBES data.
As a result of this news, the bank’s shares experienced a nearly 3% drop in premarket trading. Despite this, the financial results round out a generally positive reporting season for Wall Street’s major banks, which have been benefiting from increased income from interest payments.
Even rival Goldman Sachs, whose profit declined less than anticipated in the third quarter, enjoyed a successful quarter. In contrast, total revenue from investment banking at Morgan Stanley fell by 27% to $938 million, reflecting the global decrease in mergers and acquisitions activity.
Several factors, including rising interest rates, antitrust scrutiny, and an uncertain economic and geopolitical outlook, have collectively stifled companies’ enthusiasm for dealmaking.
In this context, lower activity resulted in an 11% decrease in fixed income revenues, although equity revenues inched up by 2%, driven by investment gains.
However, it’s worth noting that the entire investment banking sector faced challenges in the third quarter, with global investment banking fees plummeting by almost 17% from the previous year to $15.2 billion, according to data from Dealogic. This situation could be further aggravated by the recent surge in U.S. Treasury yields, which has negatively impacted investor confidence.
In the third quarter, Morgan Stanley also set aside $134 million in provisions for credit losses, marking a significant increase from the $35 million allocated during the same quarter last year, primarily due to worsening conditions in commercial real estate.