Investors gave Morgan Stanley’s new boss a rough reception Tuesday, pushing down the firm’s stock more than 4% on the day of Ted Pick’s earnings debut.
The Wall Street giant announced Tuesday that its profits fell 32% in the fourth quarter when compared with the same year-ago period. The decline was largely due to charges associated with a Justice Department settlement and a special assessment paid to the FDIC.
Revenue from wealth management was roughly flat from a year earlier, while revenues from investment banking and trading were up.
What apparently concerned investors was a disclosure that lower margins in Morgan Stanley’s wealth management business may stay that way for the near future.
Pick said that division will eventually be able to hit pre-tax margins of 30%. But for all of 2023 the margin was 24.9%, despite the firm adding $282.3 billion in net new assets. In the fourth quarter the margin was 21.5%, despite adding $47.5 billion in net new assets.
“Given some of the recent macro headwinds in our continued investments for growth, it’s reasonable to expect reported margins to consolidate in the mid-20s range over the near term,” Pick told analysts.
Morgan Stanley’s stock drop Tuesday was its sharpest single-day decline since Oct. 18. It is down roughly 8% since Pick started as CEO on Jan. 1. Shares were steady in Wednesday’s premarket.
Pick made it clear Tuesday that he intends to build upon a structure already established by his predecessor, James Gorman, instead of remaking it.
“There is not a change in strategy,” he said.
The target of a 30% margin in the firm’s wealth management business — which when combined with investment management is now a bigger contributor to Morgan Stanley’s overall revenue than its investment bank — is one of four goals set by Gorman that Pick reinforced during his Tuesday call with analysts.
The other three were: $10 trillion in assets for wealth and investment management, a 70% firm-wide efficiency ratio, and a 20% return on tangible equity.
As of the end of the fourth quarter, the firm had $6.6 trillion in client assets between its wealth and investment management divisions, an 84% efficiency ratio, and 8.4% return on tangible equity.
“We will hit them,” he said of the targets, but also added that it would “take time.”
When asked by one analyst to compare his style with Gorman’s, Pick said he and his predecessor are “more similar than not.” He lauded Gorman’s positive mindset and how he infused consistency, rigor, and durability into Morgan Stanley’s operations.
Gorman took over in 2010 as the firm faced questions about its survival in the aftermath of the 2008 financial crisis.
He then made an aggressive push into wealth management as a way of smoothing out the volatility from trading and investment banking.
Pick was also there in 2008 and Tuesday he referenced that time, calling it “our moment before the abyss.”
“We are determined not to revisit anything that feels like those days,” he added
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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