Bank’s fourth quarter revenue beats forecasts, though profit was dented by assessment fees and legal charges
16 January 2024 - 18:01
byManya Saini and Tatiana Bautzer
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New York — Morgan Stanley’s fourth-quarter revenue beat expectations on Tuesday as debt underwriting powered a rebound in investment banking, but profit took a hit from $535m in charges.
Towards the end of the year secondary share sales returned alongside high-profile initial public offerings and merger announcements, helped by lower market volatility and increased investor appetite.
“We are not changing our guidance to 2024, and we are optimistic and working on a premise of a soft landing,” CFO Sharon Yeshaya said.
Investment banking revenue rose 5% year on year, outperforming the broader industry. Fixed income underwriting revenue jumped 25% on higher investment grade issuance.
Shares in the bank which had initially climbed 2% in pre-market trading reversed course to drop 1%.
Morgan Stanley is among the banking giants that are paying special fees to replenish a government deposit insurance fund that was drained by almost $16bn after the collapse of two regional lenders last year.
It took a combined $535m in charges, which included $286m in special assessment fees to the regulator and $249m in legal charges.
Earlier this month, Morgan Stanley agreed to pay $249.4m to end years-long criminal and civil investigations into its handling of large stock trades for customers.
“Although the announcement happened in January, we had an estimate of the cost in December,” CFO Yeshaya said.
Net revenue came in at $12.9bn compared with analysts’ expectations of $12.75bn, based on London Stock Exchange Group data.
Net income fell to $1.5bn, or 85c per diluted share, in the three months ended December 31, compared with $2.2bn, or $1.26, a year ago.
The gain in investment banking driven by M&A advisory was “encouraging”, Chris Kotowski, an analyst at brokerage Oppenheimer said in a note.
“We begin 2024 with a clear and consistent business strategy and a unified leadership team,” CEO Ted Pick said. “We are focused on achieving our long-term financial goals and continuing to deliver for shareholders.”
Wealth management
Former CEO James Gorman, who became executive chair at the start of the year, had turned the bank into a wealth management powerhouse that was less dependent on volatile revenue from trading and investment banking.
He set an ambitious target of reaching $10-trillion in assets under management.
The unit has been central to the group’s growth, but analysts have now begun to flag concerns about a slowdown in new client assets, clouding the outlook for the business.
Net revenue in wealth management was flat at $6.65bn year on year. Fixed income and equity net revenue were also little changed in the fourth quarter.
For the full year, net revenue came in at $54.1bn compared with $53.7b a year ago. Net income fell to $5.18 per diluted share from $6.15.
The results compare with fellow Wall Street giants that reported lower profit on Friday, clouded by special charges and job cuts.
Rival Goldman Sachs beat estimates for fourth-quarter profit on Tuesday as its equity traders capitalised on a market recovery and revenue from asset and wealth management rose, offsetting weaker investment banking.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Morgan Stanley takes a $535m hit from charges
Bank’s fourth quarter revenue beats forecasts, though profit was dented by assessment fees and legal charges
New York — Morgan Stanley’s fourth-quarter revenue beat expectations on Tuesday as debt underwriting powered a rebound in investment banking, but profit took a hit from $535m in charges.
Towards the end of the year secondary share sales returned alongside high-profile initial public offerings and merger announcements, helped by lower market volatility and increased investor appetite.
“We are not changing our guidance to 2024, and we are optimistic and working on a premise of a soft landing,” CFO Sharon Yeshaya said.
Investment banking revenue rose 5% year on year, outperforming the broader industry. Fixed income underwriting revenue jumped 25% on higher investment grade issuance.
Shares in the bank which had initially climbed 2% in pre-market trading reversed course to drop 1%.
Morgan Stanley is among the banking giants that are paying special fees to replenish a government deposit insurance fund that was drained by almost $16bn after the collapse of two regional lenders last year.
It took a combined $535m in charges, which included $286m in special assessment fees to the regulator and $249m in legal charges.
Earlier this month, Morgan Stanley agreed to pay $249.4m to end years-long criminal and civil investigations into its handling of large stock trades for customers.
“Although the announcement happened in January, we had an estimate of the cost in December,” CFO Yeshaya said.
Net revenue came in at $12.9bn compared with analysts’ expectations of $12.75bn, based on London Stock Exchange Group data.
Net income fell to $1.5bn, or 85c per diluted share, in the three months ended December 31, compared with $2.2bn, or $1.26, a year ago.
The gain in investment banking driven by M&A advisory was “encouraging”, Chris Kotowski, an analyst at brokerage Oppenheimer said in a note.
“We begin 2024 with a clear and consistent business strategy and a unified leadership team,” CEO Ted Pick said. “We are focused on achieving our long-term financial goals and continuing to deliver for shareholders.”
Wealth management
Former CEO James Gorman, who became executive chair at the start of the year, had turned the bank into a wealth management powerhouse that was less dependent on volatile revenue from trading and investment banking.
He set an ambitious target of reaching $10-trillion in assets under management.
The unit has been central to the group’s growth, but analysts have now begun to flag concerns about a slowdown in new client assets, clouding the outlook for the business.
Net revenue in wealth management was flat at $6.65bn year on year. Fixed income and equity net revenue were also little changed in the fourth quarter.
For the full year, net revenue came in at $54.1bn compared with $53.7b a year ago. Net income fell to $5.18 per diluted share from $6.15.
The results compare with fellow Wall Street giants that reported lower profit on Friday, clouded by special charges and job cuts.
Rival Goldman Sachs beat estimates for fourth-quarter profit on Tuesday as its equity traders capitalised on a market recovery and revenue from asset and wealth management rose, offsetting weaker investment banking.
Reuters
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