Morgan Stanley's wealth management business stalled in the third quarter, with revenue from transactions decreasing 28.5% as skittish investors stayed away from the market.
For the three months ended in Sept. 30, revenues in the wealth management division from investment banking, trading and commissions and fees was $652 million. A year earlier over the same period, those revenues combined for a total of $912 million, the company reported Monday.
From June 30 to Sept. 30, the S&P 500 declined 6.7% as fears of an economic slowdown in China sparked a broad market sell off in August.
The drop in Morgan Stanley's “transactional revenues” metric primarily reflected “losses related to investments associated with certain employee deferred compensation plans, lower level of new issue activity and lower commission revenues,” the company said in a statement.
CHALLENGING BACKDROP
“Clearly the challenging backdrop in credit trading and muted retail engagement and transactional activity weighed heavily on performance,” wrote Nomura Securities analyst Steven Chubak in a research note Monday. Morgan Stanley “reported total wealth management revenues of $3.6 billion, below our forecast of $4 billion, driven primarily by lower noninterest revenue.”
Morgan Stanley's wealth management group for the third quarter reported $2.9 billion of total noninterest revenues, a decrease of 9% from the same quarter last year, when the company reported close to $3.2 billion of such revenues. The largest portion of those revenues comes from asset management, distribution and administrative fees.
Wealth management reported pre-tax income from continuing operations of $824 million compared with $800 million in the third quarter of last year, the company reported.
The company had 15,807 brokers and financial advisers at the end of September, down 2% from the end of September 2014. Annualized revenue per financial adviser was $922,000, almost flat from the same period in 2014, when revenue per adviser was $929,000.
FOCUSED ON EXPENSES
“Our wealth management franchise was impacted by a lack of new issue product and a general retail investor step back from markets, given volatility,” said CEO James Gorman on a conference call with analysts Monday morning. “While we do not expect this to be a long-term trend, we remain focused on expenses in the meantime.”
More broadly, Morgan Stanley had a tough quarter. The company reported net revenue of $7.8 billion for the third quarter compared with $8.9 billion in the same quarter last year. The bank earned 48 cents per share, down from 84 cents a year earlier. Shares dropped 4.8% on the earnings news.
“The volatility in global markets in the third quarter led to a difficult environment, impacting in particular our fixed income business and our Asia merchant banking business,” said Mr. Gorman
in a statement.
