shares slumped Tuesday after the financial-services giant reported mixed fourth-quarter results. Earnings fell short of Wall Street expectations partly because of a pair of one-time charges, but revenue beat analysts’ estimates.
Wall Street analysts zeroed in on the profit margin in the company’s wealth management business, which came in well below target, and questioned when it would hit the mark again.
Morgan Stanley shares were down 3.6% midday Tuesday. The bellwether S&P 500 index had slipped 0.3%.
The company reported fourth-quarter earnings per share of 85 cents, falling short of analysts’ estimates for $1.07 according to
FactSet
.
Net income fell to $1.5 billion from $2.2 billion.
Fourth-quarter revenue increased to $12.9 billion, exceeding the $12.7 billion Morgan Stanley reported a year earlier and analysts’ consensus expectation from FactSet, also for $12.7 billion.
Advertisement – Scroll to Continue
Morgan Stanley said its results were negatively affected by a $249 million settlement with regulators of block-trading fraud charges and by a $286 million charge related to an FDIC special assessment.
Those charges aren’t a surprise for investors who kept up with news on the company. The Securities and Exchange Commission and Justice Department announced the block-trading settlement on Friday after a long-running investigation. The FDIC announced last May that larger U.S. banks would pay a special assessment to replenish the deposit insurance fund, which had been depleted during last spring’s regional banking crisis. Morgan Stanley previously estimated its assessment at about $270 million.
During Tuesday morning’s earnings call, analysts focused on how Morgan Stanley could achieve its target of a 30% pretax margin in wealth management. The wealth management unit reported a fourth-quarter pretax margin of only 24.9%.
Advertisement – Scroll to Continue
Analysts at JPMorgan Chase said in a note Tuesday that Morgan Stanley’s wealth management revenue came in better than they expected but that the outlook for pretax margin could weigh on the stock. The analysts are keeping an Overweight rating on shares of Morgan Stanley.
Morgan Stanley executives said the margin may stay in the mid-20% range in the medium term but that the target is still achievable in the long term because of the company’s ability to attract customers, bring in more assets from new and existing clients, and expectations about how customers may redeploy uninvested cash when the Federal Reserve reduces interest rates.
During the call, Morgan Stanley CFO Sharon Yeshaya said the company continues to attract new customers via its workplace business and E*Trade. In addition, some of those customers will eventually want a full-service wealth management relationship with a Morgan Stanley financial advisor, which can be more profitable for the company. “If you think about it as a funnel, we have more participants, more assets, and over time those assets migrate toward advice,” she said.
Advertisement – Scroll to Continue
The company’s wealth management unit reported net new assets of $47.5 billion for the quarter, up from $35.7 billion for the third quarter, but down from $51.6 billion for the same period in 2022.
Yeshaya also said clients have about 22% of their assets in cash. Because of the high-interest rate environment, investors have been incentivized to keep cash in high-yielding money-market funds, short-term Treasury bills, and similar products. Clients likely will rethink their allocations when the Fed cuts rates. “As they take that money and deploy it to…
This article was originally published by a www.barrons.com . Read the Original article here. .