Shares of Morgan Stanley plunged on Tuesday morning after the financial services giant reported mixed fourth-quarter results. Earnings fell short of Wall Street expectations in part due to two one-time charges, but sales beat analysts' estimates.
The company reported fourth-quarter earnings per share of 85 cents, falling short of analysts' estimates of $1.07, according to FactSet. Net income fell from $2.2 billion to $1.5 billion.
Revenue rose to $12.9 billion in the fourth quarter, beating the $12.7 billion reported by Morgan Stanley a year earlier and the consensus expectation of analysts at FactSet, which was also at $12.7 billion US dollars lay.
Shares of Morgan Stanley were down 3.2% in regular trading on Tuesday morning. The leading index S&P 500 fell by 0.5%.
Morgan Stanley said its results were negatively affected by a $249 million settlement with regulators over block trading fraud allegations and a $286 million charge related to an FDIC special assessment.
For investors who have been keeping up with Morgan Stanley news, these allegations come as no surprise. The Securities and Exchange Commission and the Justice Department announced the block trading agreement on Friday after a lengthy investigation. The FDIC announced last May that larger U.S. banks would pay a special tax to replenish the deposit insurance fund, which was depleted during the regional banking crisis last spring. Morgan Stanley previously put its estimate at about $270 million.
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For the full year, Morgan Stanley reported revenue of $54.1 billion and net income of $9.1 billion, compared to revenue of $53.6 billion and net income of $11 billion for the year 2022.
It's been an eventful year for Morgan Stanley, with longtime chairman James Gorman announcing he is stepping down from the CEO role. Over the course of his 13-year tenure, Gorman shifted the company's business mix in favor of asset management. Morgan Stanley named Ted Pick, former head of Morgan Stanley's institutional securities business, as CEO on Jan. 1.
“We enter 2024 with a clear and consistent business strategy and a unified leadership team,” Pick said in a statement. “We are focused on achieving our long-term financial goals and continuing to deliver for our shareholders.”
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The company's wealth management unit reported fourth-quarter revenue of $6.64 billion, up slightly from $6.63 billion in the same period in 2022. Net new assets fell from $51.6 billion in the quarter to $47.5 billion.
Morgan Stanley is one of the largest asset managers in the country with well over 10,000 advisors, a robo-advisor and a huge online broker in the E*Trade sector. The company said its wealth management clients' assets rose 22% year-over-year to $5.129 trillion.
The company's institutional securities business faced headwinds in 2023 due to a slump in investment banking activities. The unit's fourth-quarter revenue rose to $4.9 billion from $4.8 billion. However, for the full year, institutional securities reported revenue of $23.1 billion, down from $24.3 billion.
This is breaking news. Read a preview of Morgan Stanley's earnings report below and check back soon for more analysis.
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Morgan Stanley will report fourth-quarter results and present its strategic outlook for the first time under new CEO Ted Pick on Tuesday.
Analysts' consensus is for earnings per share of $1.07, down from $1.31 in the year-ago period, according to FactSet. For full-year 2023, analysts forecast earnings per share of $5.47, up from $6.36 in 2022.
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The stock, currently trading around $90.00, fell in October after the company reported disappointing third-quarter results as investment banking revenue fell 27% year-over-year. Investors will be watching this unit's performance closely in its fourth-quarter report.
Of course, Morgan Stanley is not alone. The investment banking sector faced headwinds in part due to a slowdown in dealmaking. Tuesday's report could shed light on whether the company was behind the collapse.
Pick, who had led Morgan Stanley's institutional securities business, became CEO following the resignation of James Gorman earlier this year. He inherited a very different company than the one Gorman took over in 2010. Gorman changed the business mix in favor of asset management.
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One asset management metric to keep an eye on: net new money. In the third quarter, Morgan Stanley's wealth unit reported $36 billion in net new money, significantly less than the $65 billion the unit brought in during the same period in 2022. At the time, Gorman attributed this to idiosyncratic factors. Investors may want to see signs that the decline was a one-off and that Morgan Stanley is still on track to reach its goal of $10 trillion in assets over the next decade. The asset management unit had $4.8 trillion at the end of the third quarter. Morgan Stanley is one of the largest asset managers in the country with well over 10,000 advisors, a robo-advisor and a huge online broker in the E*Trade sector.
The company's earnings release could provide insight into how retail investors position their portfolios. In the third quarter, Morgan Stanley said its retail investors held 23% of their assets in cash. That's 5% more than normal. The Federal Reserve's potential interest rate cuts this year could prompt some customers to shift money from cash and cash equivalents to other assets.
Beyond the numbers, investors will also look for updates on Morgan Stanley's wealth management strategy. The company said it has an opportunity to build more connections between its workplace business and its wealth management operations, potentially creating a pipeline of future wealth customers.
Write to Andrew Welsch at [email protected]