Morgan Stanley’s stock price headed for its lowest level in a year on Wednesday after the bank said its third-quarter profit fell 10% but beat analyst expectations, while other metrics such as net interest income fell short of forecasts.
Morgan Stanley’s stock
MS,
was down 6% in morning trading to $75.53. If the losses hold, it will be the stock’s lowest close since Oct. 14, 2022, when it ended the session at $75.30, according to Dow Jones Market Data.
The stock is also on track for its largest one-day percentage drop since June 11, 2020, when it fell 8.5%.
Morgan Stanley said its profit for the three months ending Sept. 30 fell by 10% to $2.26 billion, or $1.38 a share, from $2.49 billion, or $1.47 a share, in the year-ago period.
Analysts tracked by FactSet had expected Morgan Stanley to earn $1.28 a share.
At the start of the quarter, analysts were expecting earnings of $1.58 a share.
Revenue fell 1% to $13.27 billion, ahead of the FactSet consensus estimate of $13.22 billion.
The bank’s 13.5% return on average tangible common equity in the third quarter fell short of the bank’s long-term target of 20%.
On a conference call with analysts, the bank said it sees a strong pipeline of deals, but not until early 2024. That means the fourth quarter — typically a strong point for mergers and initial public offerings for banks — is not expected to provide a boost against the worsening geopolitical situation in the Middle East.
Morgan Stanley’s net interest income missed analyst expectations by 6 cents a share and its investment-banking revenue was weaker than forecasts, said Citi analyst Keith Horwitz, who added that the stock appeared to be trading down on the net interest income figure.
“While investment banking was softer than expectations in a tough backdrop, trading revenues beat estimates (similar to what we’ve seen at peers),” Horowitz said in a note Wednesday. “In wealth management, we expect the focus to be on lower net interest income … which we believe was attributable to slight decline in deposits/mix shift.”
Morgan Stanley Chief Executive James Gorman said on the call that the market environment was mixed.
“Our equity and fixed-income businesses navigated markets well, and both wealth management and investment management produced higher revenues and profits year over year,” he said.
Morgan Stanley’s stock fell 4.4% in the third quarter, a choppy period for bank stocks overall. Prior to Wednesday’s trades, the stock was down just under 10% in the past month, compared with a 1.9% drop by the S&P 500
SPX.
For the third quarter, trading revenue rose 10% in the quarter to $3.68 billion.
Asset-management revenue increased by 6% to $5.03 billion, while investment-banking revenue dropped 24% to $1.05 billion.
During the past month, 11 analysts cut their profit estimates for Morgan Stanley and only one increased their view.
UBS analyst Brennan Hawken downgraded Morgan Stanley to neutral from buy last week, cutting his price target to $84 from $110.
“Despite its successful transformation into a wealth-management-focused firm with a solid, wire house peer leading growth profile, [Morgan Stanley] is confronted with obstacles such as deposit sorting/yield seeking, intense competition for talent, and a challenging revenue environment,” Hawken said.
The average rating among 26 analysts that cover Morgan Stanley is overweight.
The bank is in the midst of a leadership transition, with Gorman planning to step down by next May. Three potential successors at the bank include Andy Saperstein, who heads up wealth management; Ted Pick, who runs capital markets; and Dan Simkowitz, head of investment management.
Also read: Bank of America’s profit climbs 10%, boosted by interest rates and loans
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