Investors gave Morgan Stanley's new boss a harsh reception Tuesday, sending the company's shares down more than 4% on the day of Ted Beck's earnings debut.
The Wall Street giant announced Tuesday that its profits fell 32% in the fourth quarter compared to the same period last year. This decrease was largely due to fees associated with the Department of Justice settlement and the special assessment paid to the Federal Deposit Insurance Corporation (FDIC).
Revenues from wealth management were roughly flat from the previous year, while revenues from investment banking and trading rose.
What appears to have worried investors is revelations that low margins at Morgan Stanley's wealth management business may remain that way for the foreseeable future.
The division will eventually be able to achieve pre-tax margins of 30%, Beck said. But for all of 2023, the margin was 24.9%, even though the company added $282.3 billion in net new assets. In the fourth quarter, the margin was 21.5%, despite the addition of $47.5 billion in net new assets.
“Given some recent macro headwinds in our continued investments for growth, it is reasonable to expect reported margins to strengthen in the mid-20s range in the near term,” Beck told analysts.
Morgan Stanley's stock decline on Tuesday was its largest single-day decline since October 18. It's down about 8% since Beck started as CEO on January 1. Shares were flat premarket on Wednesday.
Beck explained Tuesday that he intends to build on the structure created by his predecessor, James Gorman, rather than rebuild it.
“There is no change in strategy,” he said.
The goal of getting a 30% margin in the firm's wealth management business — which when combined with investment management is now a larger contributor to Morgan Stanley's overall revenue than its investment bank — is one of four goals Gorman has set and which Beck reinforced during his call Tuesday. With analysts.
The other three were: $10 trillion in assets for wealth management and investments, a company-wide efficiency ratio of 70%, and a return on tangible equity of 20%.
As of the end of the fourth quarter, the firm had $6.6 trillion in client assets among its wealth and investment management divisions, an efficiency ratio of 84%, and an 8.4% return on tangible equity.
“We will hit them,” he said of the targets, but he also added that “it will take time.”
When an analyst asked him how his style compared to Gorman's, Beck said he and his predecessor were “more similar than most.” He praised Gorman's positive mindset and how he instilled consistency, accuracy and robustness into Morgan Stanley's operations.
Gorman took over in 2010 when the company faced questions about its ability to survive in the wake of the 2008 financial crisis.
He then made a strong push into wealth management as a way to smooth out the volatility caused by trading and investment banking.
Beck was also present in 2008, and on Tuesday he referred to that time, calling it “our moment before the abyss.”
He added: “We are determined not to return to anything resembling those days.”
David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrency, and other areas of finance.
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