Morgan Stanley Achieves Record Profits in Wealth Management

Morgan Stanley's revenue beat analysts' expectations by a slim margin, thanks to a record-breaking performance in wealth management. However, the firm's traders fell short of estimates.

Wealth management at Morgan Stanley benefited from higher net interest income as a result of rising rates. The firm's trading operation posted $3.6 billion in fourth-quarter revenue, which was worse than the $4.07 billion analysts had forecast.

The bank's wealth- and asset-management business now accounts for more than half its revenue. In the third quarter, assets in the unit rose to $4.19 trillion. Morgan Stanley has a target of $1 trillion in net new assets in wealth management every three years, and a longer term goal of $10 trillion in client assets.

"We've seen a healthy start to the year," said Chief Financial Officer Sharon Yeshaya in an interview. "A lot of it depends on the economic outlook and whether we've seen a peak in inflation and a policy change."

Morgan Stanley executives are confident that their business model will avoid any consumer-market strain in 2023, while a rebound in asset prices and capital-markets activity would be a boon for the firm.

The firm's shares surged 4.9% to $96.13 at 9:47 a.m. in New York. This was after the shares had dropped 7.3% in the 12 months through Friday.

Morgan Stanley's trading results were hurt by equity trading, with a 24% drop in revenue to $2.18 billion. This trading disappointment added to the troubles suffered by Morgan Stanley's dealmakers, who struggled throughout the year to recapture their 2021 performance.

Revenue from equity underwriting declined sharply in the fourth quarter, falling 73% to $227 million. Debt underwriting also saw a significant drop, falling 38% to $314 million. Merger bankers also had a tough quarter, with advisory revenue declining 34%.

The investment-management arm of the bank posted $1.46 billion in revenue, down 17%.

Morgan Stanley, under the leadership of CEO James Gorman, has been mindful of cost pressures. In December, it started a new round of job cuts that affected approximately 1,600 employees, or around 2% of its total workforce. Although this is a much smaller action than the firings at rival Goldman Sachs Group Inc., it serves as another indicator of Wall Street's cautious outlook as a possible US recession looms.

The bank announced last week that Chief Operating Officer Jon Pruzan will be leaving at the end of the month. Pruzan, who was seen as a candidate to be the firm's next CEO, plans to pursue other opportunities. With his exit, the list of key contenders for the top spot has been narrowed down to Ted Pick and Andy Saperstein, the firm's co-presidents, along with Dan Simkowitz, its investment-management chief.

The firm that provided Elon Musk with the debt package to help him complete his acquisition of Twitter is still holding onto that debt. Since the closing of the $44 billion deal, Musk has talked publicly about Twitter’s cost struggles and fleeing advertisers.

Morgan Stanley reported $356 million in mark-to-market losses on corporate loans held for sale and loan hedges. However, these losses were offset by net interest income and fees of $287 million. The firm also recorded $133 million in severance costs.