Morgan Stanley had a rough third quarter, and it showed in their profit report. About 9% less money was made, or $2.4 billion. It’s a drop, but not as bad as some experts thought it would be. Wall Street was busy, but not in a good way. Stocks fell sharply, falling 7.4%. Let’s look at the specifics.
Morgan Stanley, the blues of investment banking
One big reason for the drop of Morgan Stanley in profits was a big drop in income from investment banking. The investment banking business, which was run by Ted Pick, lost 27% of its value, reaching $938 million. Why? It looks like the world scene took a hit. Deals were not made as quickly because of rising geopolitical concerns following the Ukraine war and the Federal Reserve’s strict stance on interest rates. Acquisitions and mergers weren’t exactly going well.
Worries About Managing Wealth
On the home front, there were some problems for the wealth management company. It dropped from $64.8 billion a year ago to $35.7 billion. Goldman Sachs analysts said that a slow flow of assets and a slow shift to higher fees were both causes for worry.
Morgan Stanley CEO Changes and a Drop in Shares
There’s also a bit of anger in the air. Analysts at Evercore didn’t like how there wasn’t any news about the long-awaited new CEO of Morgan Stanley. CEO James Gorman, who has been in charge since 2010, said in May that he would be leaving soon, but no one has been publicly named to take his place. This uncertainty didn’t sit well with some investors, which helped cause shares to drop 7.4% and hit a one-year low.
Bright Spots and the Future
Even with all the problems, Morgan Stanley did better than expected. They made $1.38 per diluted share, which was more than the $1.28 that was predicted. Gorman is still positive and says the bank is in great shape, even though the world and markets are in a lot of trouble. He also gave hints that a statement about who will take over from him is coming soon.
In terms of the future, Gorman and CFO Sharon Yeshaya said that banking, energy, technology, and artificial intelligence could all grow. But they don’t think things will really start to pick up until next year. Gorman thinks most of the activity will happen in 2024.
Credit Loss Provisions and Trends in Trading
Also, the bank set aside $134 million for credit loss reserves. This is a big increase from the $35 million it set aside in the same quarter of last year. Part of the reason for this was that business real estate was getting worse. This may sound scary, but Yeshaya reassured us that the bank has taken steps to protect itself and the exposure is less than 5% of the loan portfolio.
It wasn’t very loud in the dealing room, which was run by Ted Pick. Trading in stocks went up by 2%, but trading in fixed income went down by 11%. Gorman said that they expect trade to pick up as interest rates start to go down. This will happen as clients slowly move their money from cash to the markets.
Morgan Stanley third quarter ended with some problems, but the bank is now getting ready for what’s to come. They are keeping an eye on how the market is changing so that the next three quarters will probably go more smoothly.