Stocks rise more than 7% as investors overlook declining investment bank earnings
Record income from Wealth Management helped Morgan Stanley beat fourth-quarter earnings expectations, partially offsetting a sharp decline in investment banking.
Overall, Morgan Stanley reported that net income fell 40% year-over-year to $2.2 billion, while his earnings per share on Tuesday fell to $1.26. It beat analysts’ expectations of $1.19 for him.
The figure also highlights the impact of CEO James Gorman’s diversification efforts on wealth and wealth management. So far, he has only partially succeeded in offsetting the highly cyclical returns of investment banks in difficult markets.
But investors welcomed the approach, which helped open a valuation gap in the stock market with longtime rival Goldman Sachs, which also reported results on Tuesday.
Morgan Stanley shares rose more than 7% in morning trading.
The company’s results include his $133 million to fund about 1,800 job cuts (roughly 2-3% of the company’s workforce) that the bank made late last year. CFO Sharon Yeshaya said further job cuts are not expected unless the economy worsens. “We are happy with our position,” she added.
Investment Banking had another difficult quarter, with Morgan Stanley’s earnings down 49% year-over-year to $1.25 billion for him, matching analyst estimates of $1.2 billion for her. Rivals JPMorgan Chase & Co., Bank of America Inc., and Citigroup Inc. on Friday reported investment bank earnings more than halved in the most recent quarter compared to the same period last year.
The decline highlighted a contrast to 2021 when Morgan Stanley and its peers made money from M&A advice and IPOs. This activity slowed dramatically in 2022.
Revenues in wealth control, which incorporates online buying and selling platform ETrade, have been up 6 according to cent to greater than $6.6bn. But funding control, consisting of Eaton Vance following Morgan Stanley’s acquisition of the cash supervisor in 2021, turned into a hit through falling markets that reduce belongings below control. Revenues dropped 17 according to cents to $1.5bn however crowned analyst estimates of $1.3bn.
“As we method 2023, we achieve this with quiet confidence, recognising we’ve got a line of sight with the sturdiness of our wealth and funding control businesses,” Gorman stated on a name with analysts. “I sense excellent approximately wherein the complete package deal is.”
Analysts at UBS referred to the “center traits encouraging” and opined that “resilient wealth control” intended for Morgan Stanley turned into “clearing the low bar”.
Trading results were significantly weaker than analysts had expected, with net sales of $3.6 billion. Bond trading has had its best year in a decade, but the stock has been pulled down in comparison to its mark-to-market gains in 2021. By comparison, JP Morgan’s trading revenue increased by 7%, while Citi’s also increased by 18%.
Gorman and Yeshaya emphasized that the bank’s common equity Tier 1 ratio is 15.3% of his. This gave the bank the flexibility to continue to buy back shares, increase dividends, and take advantage of opportunities as the economy improved. “If the market recovers, it will benefit from growth,” Gorman said in an interview with analysts. “It’s a great position.”
The chief executive also said wealth management’s margin improvement, which reached 29.2% in the fourth quarter excluding integration costs, is close to the company’s target of 30%. This would allow him to book a pre-tax profit of $6.6 billion in 2022. Gorman said that in the long term, he aims to grow his current $5.5 trillion in client assets by $1 trillion every three years.