Morgan Stanley posts 30% drop in Q3 income on investment banking revenue decline

The New York-headquartered bank reported net income of $2.6bn for the July-September period

Morgan Stanley has recorded a 12 per cent dip in third-quarter net revenue to $12.9 billion. Reuters

Morgan Stanley, one of the biggest banks in the US, has reported a drop of nearly 30 per cent in its third-quarter net income, missing analysts' estimates, as investment banking revenue fell sharply.

Net income for the three months to the end of September dropped to $2.6 billion, down from $3.7bn at the end of the same period in 2021, the New York-headquartered bank said in statement on Friday.

Revenue for the reporting period slid 12 per cent to $12.9bn in the July-September period, missing the $13.3bn analysts' estimate complied by Refinitiv. Investment banking revenue slumped 55 per cent to $1.28bn, with declines across the bank's advisory, equity and fixed income segments.

“Performance was resilient and balanced in an uncertain and difficult environment, delivering a 15 per cent return on tangible common equity,” James P Gorman, chairman and chief executive of the bank, said.

James P Gorman, chairman and chief executive of Morgan Stanley. Reuters

“Wealth management added an additional $65bn in net new assets and produced a pre-tax margin of 28 per cent, excluding integration-related expenses, demonstrating scale and stability despite declining asset values,” Mr Gorman said.

Morgan Stanley shares dropped nearly 4 per cent to $76.21 at 7pm UAE time on Friday. The company stock has lost nearly 25 per cent of its value in the past 12 months.

The bank’s wealth management arm reported a 3.3 per cent annual jump in the third quarter revenues to $6.1bn, compared with $5.9bn during the same period a year ago.

However, asset management revenue decreased 7 per cent, reflecting declines in the markets. It was partially offset by positive fee-based flows, the bank said.

The investment management division reported a revenue of $1.2 billion, a drop of nearly 20 per cent from $1.5bn earned during the same quarter last year. Performance-based income and other revenues decreased from a year ago, “primarily due to the reversal of accrued carried interest in certain of our private funds”, Morgan Stanley said.

“While investment banking and investment management were impacted by the market environment, fixed income and equity navigated challenging markets well,” Mr Gorman said.

“We continue to maintain our strong capital position while repurchasing $2.6 billion of shares and distributing a healthy dividend.”

Under its share repurchase programme, the bank repurchased $2.6bn worth of its outstanding common stock during the quarter.

The Morgan Stanley board also announced a $0.77 quarterly dividend per share payable on November 15 to common shareholders of record as of October 31.

Mr Gorman also hinted at possible job cuts at the bank during an analysts' call on Friday, according to Bloomberg.

“You’ve got to take into account the rate of growth we have had in the last few years … we have learned some things during Covid about how we can operate more efficiently. So that’s something the management team is working on between now and the end of the year,” he said.