Morgan Stanley exec issues warning

James Gorman, CEO of Morgan Stanley, has cautioned that investment banking revenues may not recover until next year, following the bank’s net profits dropping almost a fifth in Q1 2023. Morgan Stanley and its competitors have been impacted by a prolonged slowdown in investment banking activity due to the financial turmoil caused by the collapse of US regional lenders and Credit Suisse in Europe, which has kept dealmakers on the sidelines. Gorman informed analysts that mergers and acquisitions, debt and equity underwriting activity “remain very subdued,” but added that these revenues would return eventually.

Morgan Stanley’s investment banking revenues fell 24% to $1.2bn, slightly ahead of analysts’ estimates of $1.1bn, and in line with similar drops at other large Wall Street banks. Revenue from fixed-income trading, which benefited from central banks’ aggressive interest rate rises and market volatility around the war in Ukraine in the past 12 months, was down 12% at $2.6bn, beating analysts’ estimates for $2.4bn but still lagging behind rivals JPMorgan, Citigroup and Bank of America where revenues were either flat or up. Goldman Sachs reported fixed-income trading revenues down about 17%.

On the other hand, Morgan Stanley’s wealth management division, which had been central to Gorman’s success in boosting the stock price, failed at the start of 2023 to pick up the slack from the investment banking slowdown. The bank’s wealth management division made $6.6bn in revenue in Q1, up 11% from the same period last year and ahead of analysts’ expectations. The division also pulled in $110bn in net new assets during the quarter.

In recent years, Gorman has grown Morgan Stanley’s money management operations with deals for ETrade and Eaton Vance, and he said that “we’ll do more acquisitions.” Sharon Yeshaya, Morgan Stanley’s chief financial officer, explained that the collapse of Silicon Valley Bank triggered a movement out of deposits and into products such as money market funds and US Treasuries. However, many of these assets still remained with the bank, she added.