Dragging Down Profits

Dragging Down Profits

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  • Morgan Stanley experienced its most substantial stock price drop since June 2020, primarily due to a significant decline in fees collected by the firm's dealmakers on Wall Street and dwindling inflows within its wealth management division. The revenue generated from investment banking saw a sharp 27% decline, and the fixed-income trading segment struggled, resulting in a decrease in overall profitability.
  • The firm's wealth management division fell short of analyst expectations, posting revenues of $6.4 billion, with net new assets totaling $35.7 billion, marking the lowest level in more than three years. Morgan Stanley's stock price tumbled by as much as 7.9% during New York trading, indicating the most substantial post-earnings decline in at least a decade. This drop exceeded the 5.5% decline recorded in shares up to that point in the current year. The wealth management slowdown followed ambitious targets set by Morgan Stanley for a business that had thrived following the acquisition of ETrade. Furthermore, the bank's net interest income in the quarter, amounting to $2 billion, reached its lowest point in over two years as affluent clients sought higher yields for their deposits.

Why it matters

Despite these setbacks, Morgan Stanley managed to outperform trading expectations, aligning with the performance of the largest US banks. CEO James Gorman expressed optimism for a resurgence in deals and capital raising, suggesting that the prior quarter's decline in investment banking fees had bottomed out and would likely rebound in the coming months, with a return to normalcy expected next year.

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