Banking: Morgan Stanley earnings fall 10% but beat lowered Wall Street expectations

United States

Morgan Stanley on Wednesday said its third-quarter profit fell 10% amid weakness in its investment banking business, but its trading and asset-management revenue rose.

Morgan Stanley MS, +2.03% said profit for the three months ending Sept. 30 fell to $ 2.26 billion, or $ 1.38 a share, from $ 2.49 billion, or $ 1.47 a share, in the year-ago period.

Analysts tracked by FactSet had expected Morgan Stanley to earn $ 1.28 a share.

At the start of the quarter, analysts were expecting earnings of $ 1.58 a share.

Revenue fell 1% to $ 13.27 billion, ahead of the FactSet consensus estimate of $ 13.22 billion.

The bank’s 13.5% return on average tangible common equity in the third quarter fell short of the bank’s long-term target of 20%. On a conference call with analysts, the bank forecast a robust deal pipeline for mergers and acquisitions, but not until 2024.

Morgan Stanley’s stock fell 2.8% in premarket trading on Wednesday.

Chief Executive James Gorman said the market environment was mixed.

“Our equity and fixed-income businesses navigated markets well, and both wealth management and investment management produced higher revenues and profits year-over-year,” Gorman said.

Morgan Stanley’s stock fell 4.4% in the third quarter in a choppy period for bank stocks overall. Prior to Wednesday’s trades, the stock was down just under 10% in the past month, compared with 1.9% drop by the S&P 500 SPX.

For the third quarter, trading revenue rose 10% in the quarter to $ 3.68 billion.

Asset-management revenue increased by 6% to $ 5.03 billion, while investment-banking revenue dropped 24% to $ 1.05 billion.

During the past month, 11 analysts cut their profit estimates for Morgan Stanley and only one increased their view.

UBS analyst Brennan Hawken downgraded Morgan Stanley to neutral from buy last week, cutting his price target to $ 84 from $ 110.

“Despite its successful transformation into a wealth-management-focused firm with a solid, wire house peer leading growth profile, MS is confronted with obstacles such as deposit sorting/yield seeking, intense competition for talent, and a challenging revenue environment,” Hawken said.

The average rating among 26 analysts that cover Morgan Stanley is overweight.

The bank is in the midst of a leadership transition, with Chief Executive James Gorman planning to step down by next May. 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.

Also read: Bank of America’s profit climbs 10%, boosted by interest rates and loans