Investors gave Morgan Stanley's new boss a rough reception Tuesday, sending the company's shares down more than 4% on the day of Ted Pick's earnings debut.
The Wall Street giant said Tuesday that its fourth-quarter profits fell 32% compared to the same period last year. The decline was largely due to charges related to a settlement with the Justice Department and a special assessment to the FDIC.
Asset management revenue remained about the same year-over-year, while investment banking and trading revenue increased.
Ted Pick, the new CEO of Morgan Stanley. (Jeenah Moon/Portal) (Portal / Portal)
What appeared to worry investors was the revelation that lower margins in Morgan Stanley's wealth management business could continue into the near future.
Pick said the division will ultimately be able to achieve a 30% pretax margin. But for all of 2023, the margin was 24.9%, even though the company added $282.3 billion in net new money. In the fourth quarter, the margin was 21.5% despite adding $47.5 billion in net new money.
“Given some of the recent macro headwinds to our continued growth investments, it is reasonable to expect reported margins to consolidate in the mid-20s in the near term,” Pick told analysts.
Morgan Stanley's share price decline on Tuesday was its biggest single-day decline since October 18. It's down about 8% since Pick took over as CEO on Jan. 1. Shares remained stable premarket on Wednesday.
Pick made it clear on Tuesday that he wants to build on a structure already established by his predecessor, James Gorman, rather than redesign it.
“There is no change in strategy,” he said.
Former Morgan Stanley CEO James Gorman. (Evelyn Hockstein/Portal) (Portal / Portal)
The target of a 30 percent margin in the company's wealth management business – which, combined with investment management, is now a larger contributor to Morgan Stanley's overall revenue than its investment bank – is one of four goals set by Gorman that Pick reiterated in his Tuesday call with analysts.
The other three were: $10 trillion in assets for wealth and investment management, a company-wide efficiency ratio of 70%, and a return on tangible equity of 20%.
The story goes on
At the end of the fourth quarter, the company had $6.6 trillion in client assets between its wealth and investment management divisions, an efficiency ratio of 84% and a return on tangible equity of 8.4%.
“We will hit them,” he said of the targets, but also added that it would “take time.”
When asked by an analyst to compare his style to Gorman's, Pick said he and his predecessor were “more similar than not.” He praised Gorman's positive attitude and the way he brought stability, rigor and consistency to Morgan Stanley's operations.
Gorman took over the company in 2010 as the company faced questions about its survival following the 2008 financial crisis.
He then made an aggressive push into wealth management to offset volatility in commercial and investment banking.
Pick was also there in 2008 and referred to that time on Tuesday, calling it “our moment before the abyss.”
“We are determined not to relive anything that feels like it was back then,” he added
David Hollerith is a senior reporter at Yahoo Finance, covering banking, crypto and other financial areas.
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