Morgan Stanley profit knocked by investment banking downturn

Morgan Stanley reported a 30 per cent year-on-year fall in third-quarter net income, marking its longest streak of declines since 2019 as it continues to suffer from a drop-off in investment banking fees.

The Wall Street bank said on Friday its third-quarter net income was $2.6bn, or $1.47 a share, down from $3.7bn, or $1.98 a share, in the same period last year. Analysts had forecast quarterly net income of $2.7bn, or $1.52 a share, according to data compiled by Bloomberg.

The bank’s net revenues for the quarter were $13bn, down 12 per cent from $14.8bn a year earlier, and slightly below analysts’ expectations of $13.2bn.

“While investment banking and investment management were impacted by the market environment, fixed income and equity navigated challenging markets well,” Morgan Stanley chief executive James Gorman said in a statement.

The declines reflect in part the stellar numbers posted in 2021 when banks like Morgan Stanley benefited from record dealmaking activity. However, mergers and acquisitions and new stock market listings have slowed more than bank executives were anticipating at the start of the year.

Investment banking revenue fell 55 per cent to $1.3bn, slightly ahead of analysts’ estimates of $1.2bn. Revenues from trading, which benefited from recent market volatility, were down 3 per cent at $4.5bn, below analysts’ estimates for $4.8bn.

The bank also took $35mn in provisions for credit losses, including markdowns on loans being held for sale to fund bridge financing for deals like leveraged buyouts. Morgan Stanley is the lead bank helping to finance Elon Musk’s $44bn takeover of Twitter, a deal that could generate losses in the hundreds of millions of dollars or more for the lenders.

Revenues in wealth management, which includes online trading platform ETrade, were up 3 per cent at $6.1bn, in line with estimates for $6.1bn. In investment management, which houses Eaton Vance following Morgan Stanley’s acquisition of the money manager last year, revenue shrank 20 per cent to $1.2bn, below estimates of $1.4bn.

Morgan Stanley’s stock was down 2.8 per cent in early trading following Wall Street’s opening bell on Friday.