December 1, 2023

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Morgan Stanley profits decline due to Wall Street slowdown

Morgan Stanley profits decline due to Wall Street slowdown

Morgan Stanley’s third-quarter earnings fell 9% from a year ago as investment banking and trading revenue declined, another sign that Wall Street is still struggling to recover from the long recession.

Investors expressed disappointment, sending the company’s shares down nearly 7% on Wednesday morning. This puts the stock on track for its biggest single-day decline in more than three years.

Morgan Stanley’s performance placed it near the bottom of the major banks. Its earnings decline was smaller than the 33% drop at rival Goldman Sachs (GS) but lagged earnings jumps reported by JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C).

Morgan Stanley CEO James Gorman. Reuters/Brendan MacDiarmid

Its investment banking revenues fell 27% from a year ago, putting it last among major banks with large Wall Street operations.

Investment banking fees at Goldman Sachs, Bank of America and Citigroup rose from last year. At JPMorgan, these fees fell much less — 2.6% — over the same period.

Morgan Stanley’s revenues from stock and bond trading also decreased by 4%. The wealth management and investment units achieved higher profits on an annual basis, but they were lower than analysts’ expectations.

“While the market environment remained mixed this quarter, the company delivered strong results,” said CEO James Gorman, who announced in May his plans to step down as leader “sometime in the next 12 months.”

Before Wednesday’s results, its stock was down 5.5% year to date, outperforming all of its peers except JPMorgan Chase and Wells Fargo.

But in the past three months, it has fallen 7%, a steeper decline than all of its big-bank peers except Citigroup.

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Gorman told analysts that the company is “seeing increasing evidence of mergers and acquisitions and underwriting calendars being built.” While he expects “momentum to continue this year,” Morgan Stanley expects “most activity to materialize in 2024.”

“Despite the weaker quarterly results, we continue to see broad sector diversification of our completed deals, and the backlog reflects a similar pattern,” the company’s CFO Sharon Yeshaya added on a call with analysts.

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