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Investors on Tuesday gave a rough welcome to Morgan Stanley’s new president, pushing the company’s stock down more than 4% on the day of Ted Pick’s earnings release.
The Wall Street giant announced Tuesday that fourth-quarter profit fell 32% compared to the same period last year. This decrease was primarily due to charges related to the Department of Justice settlement and special assessments paid to the FDIC.
Revenues in the wealth management division were roughly flat compared to the same period last year, but revenues in the investment banking and trading divisions increased.
What clearly concerned investors was the disclosure that declining margins in Morgan Stanley’s wealth management business could continue into the near future.
Pick said the division could eventually achieve a pre-tax profit margin of 30%. However, even though the company added $282.3 billion in net new assets, its profit margin for the full year of 2023 was 24.9%. In the fourth quarter, even though net new assets increased by $47.5 billion, the profit margin was 21.5%.
“Given some of the recent macro headwinds as we continue to invest in growth, we expect reported margins to remain in the mid-20s range in the near term,” Pick told analysts. It is reasonable to do so.”
Tuesday’s drop in Morgan Stanley stock was the steepest one-day decline since Oct. 18. The stock is down about 8% since Mr. Pick took over as CEO on January 1st. Shares were stable in Wednesday’s premarket.
Pick made clear Tuesday that he intends to build on, rather than reinvent, the structure already established by his predecessor, James Gorman.
“There is no change in strategy,” he said.
The firm’s 30% profit margin goal for its wealth management business, which when combined with investment management currently contributes more to Morgan Stanley’s overall revenue than the investment bank, is part of four goals set by Gorman. One of those things, Pick emphasized on Tuesday’s conference call. together with the analyst.
The other three are $10 trillion in assets for asset and investment management, 70% enterprise efficiency, and 20% return on tangible equity.
At the end of the fourth quarter, the company’s Wealth Management and Investment Management segments had combined client assets of $6.6 trillion, an efficiency of 84%, and a return on tangible equity of 8.4%.
“We will definitely achieve our goal,” he said, but added, “It will take time.”
When asked by an analyst to compare his style to Gorman’s, Pick said his and his predecessor’s styles were “more similar than not.” He praised Gorman’s forward thinking and how he injected consistency, rigor and durability into Morgan Stanley’s operations.
Gorman took over in 2010 as the company faced questions about its survival in the aftermath of the 2008 financial crisis.
He later turned to wealth management as a way to smooth out the volatility of trading and investment banking.
Mr. Pick also visited there in 2008, and on Tuesday he referred to that time, calling it “the moment before the abyss.”
“We are determined to never go back to what we were like then,” he added.
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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