Morgan Stanley Earnings Hit by Charges, $286m FIDC and $249m SEC Criminal Investigation

Morgan Stanley reported mixed fourth quarter earnings and revenue before the bell Tuesday. Net income came to $1.52 billion, or 85 cents per share, down more than 30% from $2.24 billion, or $1.26 per share, a year ago. Revenue of $12.9 billion topped analysts’ estimates and rose from $12.75 billion a year ago. This is the first earnings report under new CEO Ted Pick. MS was hit by two one-time regulatory charges, a $286 million charge related to a Federal Deposit Insurance Corp. special assessment on regional bank bailouts and a $249 million legal charge to settle a criminal investigation and related SEC probe of the unauthorized disclosure of block trades. MS shares have fallen nearly 4% in 2024 after a 10% gain last year.

Morgan Stanley

Morgan Stanley released earnings after major competitor Goldman Sachs also reported today. On Friday a slew of major banks reported. There were mixed results at the close; Wells Fargo (WFC 47.40, -1.64, -3.3%), Bank of America (BAC 32.80, -0.35, -1.1%), JPMorgan Chase (JPM 169.05, -1.25, -0.7%) were lower while and Citigroup (C 52.62, +0.54, +1.0%) was higher. BlackRock (BLK) also reported. Notably all other than Bank of America exceeded consensus earnings estimates for the December quarter and didn’t sound any real macro alarm bells.

Morgan Stanley Q4 2023 Earnings

Q4 23 Earnings release at 7:30 a.m. ET; conference call at 9:30 a.m. ET

  • Net income came to $1.52 billion, or 85 cents per share, down more than 30% from $2.24 billion, or $1.26 per share, a year ago. May not compare with $1.01 expected, according to LSEG.
  • Revenue: $12.90 billion vs. $12.75 billion, expected, according to LSEG.
  • FICC Sales & Trading Rev $1.43B (est $1.47B)
  • Equity Sales & Trading Rev $2.20B (est $2.26B)
  • Wealth Mgnt Net Rev $6.65B (est $6.40B), slightly higher than the $6.63 billion from the same quarter a year ago.
  • Investment management Rev $1.46 billion, little changed from last year.
  • NII $1.90B (est $1.94B)
  • Non-Interest Expenses $10.80B (est $10.17B)

“In 2023, the Firm reported a solid ROTCE [return on average tangible common shareholders’ equity] against a mixed market backdrop and a number of headwinds,” “We begin 2024 with a clear and consistent business strategy and a unified leadership team. We are focused on achieving our long-term financial goals and continuing to deliver for shareholders.”

New CEO Pick said in a statement.

MS: Stock Market Reaction

  • $86.43 -3.27 (3.65%) today
  • $86.43 -10.65 (10.97%) past year
  • $86.43+43.95 (103.46%) past 5 years
  • 52wk High $98.01
  • 52wk Low $69.34

Investment Banking Losses

Higher interest rates and concerns about a possible recession are hurting the desire for deals or taking companies public. That slowdown, which started last year, has lasted longer than many bankers had expected. I

Morgan Stanley has said it sees a strong pipeline of deals, but not until early 2024. Investment bankers’ clients are putting off stock and debt sales while waiting for a warmer reception from investors as the Fed raised rates aggressively.

Higher rates increase margins but at a cost.

The Federal Reserve’s rate-boosting campaign, producing more revenue as rates rise, allowing banks to generate more profit from their core activities of taking in deposits and making loans. With higher interest rates from the Federal Reserve’s aggressive rate hiking revenues are expected to rise from a year earlier. Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out.

However, there is a price for this, the clearest is the housing market which with the collapse in affordability through higher rates and inflation has dropped off dramatically in activity. For banks this means the fee income from home lending has fallen right off.

Outlook

Morgan Stanley Chief Executive Pick on the earnings call warned of two “major downside risks” that could weigh on his bank in 2024: The first is intensifying geopolitical conflicts; and the second is the state of the U.S. economy.

“The base case is benign, namely that of a soft landing,” Pick said. “But if the economy weakens dramatically in the quarters to come and the Fed has to move rapidly to avoid a hard landing that would likely result in lower asset prices and activity levels.”

He also said inflation could continue to challenge the consumer and the supply chain, which could result in a stickier Fed and higher interest rates for longer.

Morgan Stanley’s Last Quarter Earnings

Transition to New CEO

In May, Gorman announced his plan to resign within a year, capping a successful tenure marked by massive acquisitions in wealth and asset management. Morgan Stanley’s board narrowed the search for his successor to three internal executives, he said at the time. Three potential successors at the bank include Andy Saperstein, who heads up wealth management; Ted Pick, who runs capital markets; and Dan Simkowitz, head of investment management. Mr. Pick won out.

“This firm is in excellent shape notwithstanding the geopolitical and market turmoil that we find ourselves in,” Gorman said back then. “My hope and expectation is to hand over Morgan Stanley with as clean a slate as possible and deal with a few of our outstanding issues in the next couple of months.”

Morgan Stanley’s Competitors Q4 Earnings:


E Trade and Eaton Vance Aquisition’s

Morgan Stanley through E*Trade continued to attract retail-trading customers. Those customers numbered 8.1 million at the end of March, up from 7.6 million a year prior. However, those customers are trading less often. The average daily number of retail trades the company handled was about 831,000, down from more than 1 million a year ago.

Morgan Stanley’s acquisition of E*TRADE continues reward the banks as the record-setting stock market is drawing in waves of new capital to the online brokerage company. The bank spent $13 billion to acquire E-Trade to further its reach with the mass affluent, and $7 billion to buy Eaton Vance to bulk up its investment management business.

On Feb. 20, 2020, Morgan Stanley agreed to acquire E-Trade Financial (ETFC) in a $13 billion, all-stock deal. The Wall Street investment bank said the purchase would add E-Trade’s consumer-oriented business to its advisor-driven model. The deal closed in Q4, 2020

Wealth management, which Morgan Stanley expanded through the acquisition of ETrade, increased revenues.

From The TradersCommunity Research Desk

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