Morgan Stanley beats estimates on trading, but shares dip as wealth management disappoints

Morgan Stanley posted third-quarter results Wednesday that topped profit estimates on better-than-expected trading revenue.

Here’s what the company reported:

• Earnings per share: $1.38, vs. $1.28 estimate from LSEG, formerly known as Refinitiv
• Revenue: $13.27 billion, vs. expected $13.23 billion

Profit fell 9% to $2.41 billion, or $1.38 a share, from a year ago, the New York-based bank said in a statement. Revenue grew 2% to $13.27 billion, essentially matching expectations.

Morgan Stanley’s trading operations helped offset revenue misses elsewhere at the firm. The bank’s bond traders produced $1.95 billion in revenue, roughly $200 million more than the StreetAccount estimate, while equity traders brought in $2.51 billion in revenue, $100 million more than expected.

But the bank’s all-important wealth management division generated $6.4 billion in revenue, below the estimate by more than $200 million, as compensation costs in the division rose.

Investment banking accounted for another miss in the quarter, producing $938 million in revenue, below the $1.11 billion estimate, as the company cited weakness in mergers and IPO listings. The bank’s investment management division essentially met expectations with $1.34 billion in revenue.

Shares of Morgan Stanley dipped 3% in premarket trading.

CEO James Gorman cited a “mixed” environment for his businesses and acknowledged that the firm’s wealth management division gathered fewer new assets than in recent quarters. That’s because surging interest rates have made money market funds and Treasuries attractive, he told analysts Wednesday. The wealth management business was still tracking to hit his three-year goal of generating $1 trillion in new assets, he added.

“When people have a choice of making a 4%, 5% return by doing nothing, they’re not going to be trading in the markets,” Gorman said.

Led by Gorman since 2010, Morgan Stanley has managed to avoid the turbulence afflicting some rivals lately. While Goldman Sachs was forced to pivot after a foray into retail banking and as Citigroup struggles to lift its stock price, the main question at Morgan Stanley is about an orderly CEO succession.

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 has narrowed the search for his successor to three internal executives, he said at the time.

Gorman reiterated his desire to hand over the CEO position to a successor within months.

“This firm is in excellent shape notwithstanding the geopolitical and market turmoil that we find ourselves in,” Gorman said. “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.”

Last week, JPMorgan Chase, Wells Fargo and Citigroup each topped expectations for third-quarter profit, helped by low credit costs. Goldman Sachs and Bank of America also beat estimates on stronger-than-expected bond trading results.

This story is developing. Please check back for updates.