Major Wall Street investment banks are releasing their latest earnings reports. Morgan Stanley (MS) has announced its financial results for the fourth quarter of 2023. The bank's revenue of $12.9 billion exceeded market estimates, particularly in the wealth management sector. However, the overall profit performance fell short of expectations, with a net profit of $1.52 billion, a year-on-year decrease of over 30%. As of press time, Morgan Stanley's share price had dropped by 3.23% to $86.8.
Analysts attribute the downturn in investment banking performance to last year's U.S. regional banking crisis. The U.S. Federal Deposit Insurance Corporation (FDIC) levied a special assessment to recover losses to the Deposit Insurance Fund (DIF) due to the protection of uninsured depositors of Silicon Valley Bank and Signature Bank. Morgan Stanley incurred $286 million in special assessment-related expenses.
Additionally, to resolve a prolonged investigation into its block trading business, Morgan Stanley agreed to a settlement, which included a payment of $249 million to the U.S. Department of Justice and the Securities and Exchange Commission. This extraordinary expense also offset gains from a rebound in its business operations.
Morgan Stanley's fourth-quarter 2023 net revenue of $12.9 billion was higher than the market estimate of $12.75 billion. Within this, the wealth management net revenue was $6.65 billion, surpassing the market estimate of $6.4 billion. Equity sales and trading revenue reached $2.20 billion, compared to the market estimate of $2.26 billion. Fixed income, foreign exchange, and commodities business sales and trading revenue was $1.43 billion, compared with the market estimate of $1.47 billion.
Morgan Stanley's net income for the fourth quarter dropped to $1.5 billion from $2.2 billion in the same period of the previous year, a decline of over 30% year-on-year. The diluted earnings per share were 85 cents, which is expected to be impacted by the exceptional charges mentioned above. Meanwhile, the bank anticipates its long-term return on tangible common equity capital (ROTCE) to reach 20% and expects long-term client assets to exceed $10 trillion.
Some analysts expect the earnings drop of major Wall Street banks in the fourth quarter of the previous year to be generally moderate due to higher financing costs. Increased expenses and weak trading revenues are also likely to have affected their earnings.
Morgan Stanley's CEO expressed optimism for the year ahead, citing the growing M&A activity and increasing confidence.
As one of the first international investment banks to enter China, Morgan Stanley is set to celebrate its 30th anniversary in 2024. During this period, the bank has assisted Chinese clients in raising over US$1.1 trillion in global capital markets, including US$467 billion in equity financing—the highest among foreign banks—and US$642 billion in debt financing. Additionally, the bank has participated in over US$604.6 billion of M&A-related transactions in China.
For Morgan Stanley, 2023 was a year of "attention." On August 2, a market research report from Morgan Stanley's overseas strategy analysts sparked global economic debate. The report, which included views on China's A-shares and several emerging markets, suggested downgrading China's stock ratings and advised that investors take profits. The Chinese stock market rating was downgraded to hold and wait and see (equal-weight), indicating a recommendation for investors to take profits in the current upward cycle.
The strategy report also raised questions within mainland China's securities industry, particularly regarding the professionalism and background of the report's introduction. A number of brokers and public funds have shared their "bullish" views on the future performance of A-shares.
Previously cautious, Morgan Stanley's recent stance on A-shares has also shifted. In its 2024 China Equity Strategic Outlook, the bank set the target for the CSI 300 index at 3850 points by the end of 2024.
Furthermore, Morgan Stanley demonstrated its optimism for the Chinese stock market through a self-purchase program. According to the announcement, the Morgan Stanley China A Share Index Fund will buy up to 20% of the fund's outstanding shares in cash. The self-purchase is scheduled to begin on January 22, 2024, and end by February 20, 2024, local time. A rough estimate, based on the fund's recent price, suggests that the buyout will cost over $50 million.
