Morgan Stanley's earnings are affected by a one-time charge

Morgan Stanley shares previously traded higher in pre-market activity but recently traded down 3.4%.

Morgan Stanley said its results were negatively impacted by a $249 million settlement with regulators over crowd-trading fraud charges and a $286 million charge related to an FDIC special assessment.

These accusations are not a surprise to investors who have followed the news related to Morgan Stanley. The Securities and Exchange Commission and the Justice Department announced the overall trading settlement on Friday after a long-running investigation. The Federal Deposit Insurance Corporation announced last May that major US banks would pay a special assessment to replenish the deposit insurance fund, which was depleted during the regional banking crisis last spring. Morgan Stanley previously estimated its valuation at $270 million.

For the full year, Morgan Stanley reported revenue of $54.1 billion and net income of $9.1 billion, compared with revenue of $53.6 billion and net income of $11 billion for 2022.

It's been an eventful year for Morgan Stanley, as longtime leader James Gorman announced he would step down as CEO. Over his 13-year tenure, Gorman transformed the firm's business mix in favor of wealth management. Morgan Stanley has named Ted Beck, who was head of Morgan Stanley's institutional securities business, to take over as CEO on Jan. 1.

“We start 2024 with a clear and consistent business strategy and a unified leadership team,” Beck said in a statement. “We are focused on achieving our long-term financial goals and continuing to deliver for shareholders.”

The company's wealth management unit reported fourth-quarter revenue of $6.64 billion, up slightly from $6.63 billion for the same period in 2022. Net new assets fell to $47.5 billion for the quarter from $51.6 billion.

Morgan Stanley is one of the country's largest wealth managers, employing more than 10,000 advisors, robo-advisors, and a massive online e-commerce brokerage. The company said wealth management client assets rose 22% year over year to $5.129 trillion.

The company's institutional securities business faced headwinds in 2023 due to a decline in investment banking activity. The unit's revenues rose in the fourth quarter to $4.9 billion from $4.8 billion. However, for the full year, institutional securities posted revenue of $23.1 billion, down from $24.3 billion.

This is breaking news. Read a preview of Morgan Stanley's earnings report below and check back for more analysis soon.

Morgan Stanley will report fourth-quarter earnings and present its strategic outlook on Tuesday, the first time it has done so under new CEO Ted Beck.

The analyst consensus is for earnings per share of $1.07, down from $1.31 for the same period a year earlier, according to FactSet. For all of 2023, analysts expect EPS to be $5.47, down from $6.36 in 2022.

The stock, which now trades at around $90.00, fell in October after the company reported disappointing third-quarter results, in which investment banking revenue fell 27% year-over-year. Investors will be watching the unit's performance closely in the fourth quarter report.

Morgan Stanley is certainly not alone. the The investment banking sector faced headwinds This is partly due to the slowdown in deal making. Tuesday's report may indicate whether the recession is behind the company.

Beck, who was head of Morgan Stanley's institutional securities business, became CEO after James Gorman retired at the beginning of the year. He inherited a very different company from the one Gorman took over in 2010. Gorman shifted the business mix in favor of wealth management.

One wealth management metric to watch: net new assets. During the third quarter, Morgan Stanley's wealth unit reported $36 billion in net new assets, far less than the $65 billion the unit raised during the same period in 2022. At the time, Gorman attributed it to idiosyncratic factors. Investors may want to see signs that the decline was a one-off and that Morgan Stanley is still on track to meet its goal of $10 trillion in assets in the next decade. The value of the wealth management unit reached $4.8 trillion at the end of the third quarter. Morgan Stanley is one of the country's largest wealth managers, employing more than 10,000 advisors, robo-advisors, and a massive online e-commerce brokerage.

The company's earnings call may provide insight into how retail investors position their portfolios. During the third quarter, Morgan Stanley said retail investors had 23% of their assets in cash. This is 5% higher than normal. The possibility that the Federal Reserve will cut interest rates this year may prompt some clients to shift funds from cash and cash equivalents into other assets.

Beyond the numbers, investors will also be looking for updates on Morgan Stanley's wealth management strategy. The company said it has an opportunity to build further links between its workplace business and wealth management operations, which could create a pipeline of wealth clients in the future.

Write to Andrew Welsch at [email protected]