Finance

Morgan Stanley shares slide after earnings disappointment on weak trading, wealth management

Key Points
  • The bank posted profit of 80 cents per share, below the 89 cent average estimate of analysts surveyed by Refinitiv. Companywide revenue declined 10 percent to $8.55 billion, compared with the $9.3 billion estimate.
  • Morgan Stanley's two biggest businesses, Wall Street trading and advisory and wealth management, suffered revenue declines amid a difficult market environment last year.
  • The firm posted the weakest fixed-income trading results of its peers, plunging 30 percent to $564 million, compared with the $806 million estimate.
Morgan Stanley fourth quarter earnings miss expectations
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Morgan Stanley fourth quarter earnings miss expectations

Morgan Stanley on Thursday reported profit and revenue below analysts' expectations as whipsawing markets late last year took a toll on the bank's two biggest businesses. 

The bank posted profit of 80 cents per share, below the 89 cent average estimate of analysts surveyed by Refinitiv. Companywide revenue declined 10 percent to $8.55 billion, compared with the $9.3 billion estimate.

The firm's institutional securities business, which contains its trading and advisory units, posted $3.84 billion in revenue, nearly $500 million below the $4.33 billion estimate. The bank's wealth management division posted $4.14 billion in revenue, compared with the $4.45 billion estimate. Only the bank's smallest division, investment management, exceeded estimates, producing $684 million in revenue, versus the $656.7 million estimate.

"This is not Morgan Stanley's finest hour," said Octavio Marenzi, CEO of capital markets consultancy Opimas. "In wealth management, Morgan Stanley's revenues were down 6%, while competing firms were able to eke out single-digit growth. In equities trading, Morgan Stanley was even further behind the competition, with flat revenues where other investment banks were able to benefit from market volatility and show double-digit growth."

Morgan Stanley shares dropped 5.4 percent to $42.12 at 9:52 a.m.

Under Chief Executive Officer James Gorman, Morgan Stanley has built out its wealth management division, a steadier business than its trading operations.

In theory, the increased emphasis on wealth management should help it weather a decline in trading revenue amid turbulent markets late last year. Every major Wall Street bank to post results before Thursday booked declines of at least 16 percent in fixed income revenue as clients stepped away amid sharp movements in asset classes around the world.

But Morgan Stanley posted the weakest fixed-income trading results of its peers, plunging 30 percent to $564 million, compared with the $806 million estimate. Equities trading revenue of $1.9 billion came in below the $2.04 billion estimate. Investment banking produced $1.4 billion in revenue, essentially matching analysts' estimate, as stronger advisory fees offset lower stock and bond issuance.

The fourth quarter "ended messily," said Morgan Stanley Chief Financial Officer Jonathan Pruzan. Echoing what other bank managers have said, January started more favorably for trading desks, he said. "Some of the relationships that broke down are firing back again."

Morgan Stanley also updated its strategic goals, giving investors guidance on performance metrics for 2019. During last year's review, Gorman said the bank could earn returns on average common equity of 10 to 13 percent, expand its market share in investment banking and trading and boost wealth management profit margins to 26 to 28 percent. The bank achieved those goals in 2018 and reiterated those targets for 2019 on Thursday.

"In 2018 we achieved record revenues and earnings, and growth across each of our business segments — despite a challenging fourth quarter," Gorman said in the earnings statement. "While the global environment remains uncertain, our franchise is strong and we are well positioned to pursue growth opportunities and serve our clients."

The bank is open to acquisitions in the wealth management space, Gorman said during the conference call.

Shares of Morgan Stanley fell 24 percent last year, worse than the 20 percent decline of the KBW Bank Index.

Here's what Wall Street expected:

  • Earnings: 89 cents per share, according to Refinitiv.
  • Revenue: $9.295 billion.
  • Wealth management: $4.45 billion revenue, according to FactSet
  • Trading: Equities: $2.04 billion. Fixed income: $806 million.