Morgan Stanley Earnings Didn’t Look That Unhealthy. The Inventory Is Tumbling.

Fourth-quarter income elevated to $12.9 billion, exceeding the $12.7 billion Morgan Stanley reported a yr earlier and analysts’ consensus expectation from FactSet, additionally for $12.7 billion.

Morgan Stanley shares had been down 3.2% Tuesday morning throughout common buying and selling. The bellwether S&P 500 index slipped 0.5%.

Morgan Stanley stated its outcomes had been negatively affected by a $249 million settlement with regulators of block-trading fraud costs and by a $286 million cost associated to an FDIC particular evaluation.

These costs aren’t a shock for traders who stored up with information on Morgan Stanley. The Securities and Change Fee and Justice Division introduced the block-trading settlement on Friday after a long-running investigation. The FDIC introduced final Could that bigger U.S. banks would pay a particular evaluation to replenish the deposit insurance coverage fund, which had been depleted throughout final spring’s regional banking disaster. Morgan Stanley beforehand estimated its evaluation at about $270 million.

For the total yr, Morgan Stanley reported income of $54.1 billion and web earnings of $9.1 billion, in contrast with income of $53.6 billion and web earnings of $11 billion for 2022.

It was an eventful yr for Morgan Stanley, which noticed longtime chief James Gorman announce he was stepping down from the CEO position. Over his 13-year tenure, Gorman shifted the corporate’s enterprise combine in favor of wealth administration. Morgan Stanley tapped Ted Choose, who had been head of Morgan Stanley’s institutional securities enterprise, to take over as chief government on Jan. 1.

“We start 2024 with a transparent and constant enterprise technique and a unified management workforce,” Choose stated in a press release. “We’re centered on attaining our long-term monetary targets and persevering with to ship for shareholders.”

The corporate’s wealth administration unit reported fourth-quarter income of $6.64 billion, up barely from $6.63 billion for a similar interval in 2022. Web new belongings dropped to $47.5 billion for the quarter from $51.6 billion.

Morgan Stanley is likely one of the nation’s largest wealth managers, with nicely over 10,000 advisors, a robo-advisor, and an enormous on-line brokerage in E*Commerce. The corporate stated its wealth administration consumer belongings rose 22% yr over yr to $5.129 trillion.

The corporate’s institutional securities enterprise confronted headwinds in 2023 due to a stoop in funding banking exercise. The unit’s fourth-quarter income rose to $4.9 billion from $4.8 billion. For the total yr, nevertheless, institutional securities reported income of $23.1 billion, down from $24.3 billion.

That is breaking information. Learn a preview of Morgan Stanley’s earnings report under and verify again for extra evaluation quickly.

Morgan Stanley will report fourth-quarter earnings and current its technique outlook on Tuesday, the primary time it’s going to accomplish that beneath new CEO Ted Choose.

Analysts’ consensus is for earnings per share of $1.07, down from $1.31 for a similar interval a yr earlier, in response to FactSet. For all of 2023, analysts forecast EPS of $5.47, down from $6.36 in 2022.

The inventory, now buying and selling at round $90.00, fell in October after the corporate reported disappointing third-quarter outcomes, as funding banking income slumped 27% yr over yr. Buyers can be watching that unit’s efficiency carefully within the fourth-quarter report. 

To make sure, Morgan Stanley isn’t alone. The funding banking sector has confronted headwinds partly due to a slowdown in dealmaking. Tuesday’s report may point out whether or not the stoop is behind the corporate.

Choose, who had been head of Morgan Stanley’s institutional securities enterprise, grew to become CEO following the retirement of James Gorman in the beginning of the yr. He inherited a really totally different firm than the one Gorman took on in 2010. Gorman shifted the enterprise combine in favor of wealth administration.

One wealth administration metric to look at: web new belongings. Throughout the third quarter, Morgan Stanley’s wealth unit reported $36 billion in web new belongings, nicely under the $65 billion the unit raked throughout the identical interval in 2022. On the time, Gorman chalked it as much as idiosyncratic components. Buyers might wish to see indicators the decline was a one-off and that Morgan Stanley is nonetheless on observe to hit its purpose of $10 trillion in belongings within the subsequent decade. The wealth administration unit had $4.8 trillion on the finish of the third quarter. Morgan Stanley is likely one of the nation’s largest wealth managers, with nicely over 10,000 advisors, a robo-advisor, and an enormous on-line brokerage in E*Commerce.

The corporate’s earnings name might present insights into how retail traders are positioning their portfolios. Throughout the third quarter, Morgan Stanley stated its retail traders had 23% of their belongings in money. That’s 5% greater than regular. The potential for Federal Reserve charge cuts this yr may immediate some shoppers to maneuver cash out of money and money equivalents into different belongings. 

Past the numbers, traders will even search for updates on Morgan Stanley’s technique inside wealth administration. The corporate has stated it has a chance to construct extra connections between its office enterprise and wealth administration operations, doubtlessly making a pipeline of future wealth shoppers.

Write to Andrew Welsch at andrew.welsch@barrons.com