A giant Wall Road financial institution is wrestling with investor considerations, a disappointing earnings consequence and regulatory complications.
It’s not simply Goldman Sachs (GS) that matches this description. It’s additionally Morgan Stanley (MS).
For a lot of this 12 months Goldman was the massive Wall Road financial institution within the sizzling seat because it handled a pricey retreat from shopper banking, a dealmaking stoop, job cuts, experiences of accomplice unrest and even questions on the way forward for CEO David Solomon.
However now crosstown New York Metropolis rival Morgan Stanley can also be beneath rising scrutiny because it prepares handy over the nook workplace to Ted Decide, who will exchange James Gorman as CEO on Jan. 1.
The inventory of Morgan Stanley is down 14% over the past three months and almost 11% over the past six months, greater than every other massive financial institution with a large Wall Road operation.
Goldman, by comparability, is down roughly 5% for the final three months and up barely for the final six.
Morgan Stanley’s largest single-day inventory drop in additional than three years (7%) got here in October because it disclosed that funding banking and buying and selling fell within the third quarter. All of Wall Road had been battling a protracted dealmaking downturn, however Morgan Stanley’s 27% decline in investment-banking income positioned it final among the many massive banks.
Regulatory points are additionally starting to pile up on the agency. One such headache is a years-long federal investigation into the way it dealt with so-called block trades, or non-public gross sales of inventory.
Semafor reported that the agency may find yourself paying between $500 million and $1 billion to settle the block-trading probes by the Justice Division and Securities and Alternate Fee, whereas additionally agreeing to enhance inner controls.
Morgan Stanley can also be reportedly attempting to deal with considerations from the Federal Reserve, its main regulator, about overseas wealth-management purchasers.
The Fed desires to know whether or not Morgan Stanley has the right controls to make sure these purchasers aren’t laundering cash, in accordance with a report final week in The Wall Road Journal. The agency is attempting to persuade the Fed that any weaknesses have been rectified, in accordance with the Journal.
Morgan Stanley declined to remark.
A ‘tone change’
There may be one view contained in the agency that Morgan Stanley’s inventory value will rise as soon as the block-trading probes are settled. And that agency outperforms nearly all of rivals in different vital measures — reminiscent of price-to-tangible e book worth, price-to-earnings ratio and whole quantity of tangible frequent fairness.
Wells Fargo banking analyst Mike Mayo, nevertheless, mentioned Morgan Stanley’s inventory nonetheless faces headwinds on a number of fronts as a result of buyers have considerations.
These questions, in accordance with Mayo, vary from the agency’s regulatory inquiries to sure enterprise fundamentals (development in its wealth administration unit slowed within the third quarter whereas investment-banking income slipped) to governance dangers related to bonuses not too long ago awarded to prime executives.
Mayo pointed to a latest disclosure following Decide’s CEO announcement displaying the brand new boss had been awarded a particular share-based bonus of $20 million.
The 2 different frontrunners for the job — Andy Saperstein and Dan Simkowitz, now each co-presidents — have been additionally given the identical award.
“Isn’t it sufficient to get the next bonus for being CEO and operating one of many largest funding banks on this planet?” Mayo mentioned. “Do they really want a retention bonus on prime of that? I battle to discover a precedent for that except there’s some uncommon flight danger.”
The transition to Decide from Gorman ends the tenure of one of many longest-serving CEOs on Wall Road. Gorman took over in 2010 when the agency confronted severe questions on its survival within the aftermath of the 2008 monetary disaster.
Gorman led an aggressive push into wealth administration as a approach of smoothing out the volatility from buying and selling and funding banking, buying E*Commerce and Eaton Vance and absorbing Smith Barney.
The technique labored. Morgan Stanley was “in the fitting place on the proper time with the fitting ideas,” Odeon Capital financial institution analyst Dick Bove instructed Yahoo Finance.
Since Gorman turned CEO Morgan Stanley’s inventory has climbed 154%, outperforming all its friends exterior of JPMorgan Chase (JPM).
“I feel the number of Ted Decide was precisely proper as a result of this firm has received to regulate its route dramatically,” Bove added, pointing to his anticipation that dealmaking will lead Wall Road earnings going ahead.
Gorman additionally instructed analysts final month that he expects extra deal-making exercise to materialize in 2024. When the Fed decides it has stopped elevating rates of interest, “the M&A and underwriting calendar will explode as a result of there’s monumental pent-up exercise.”
“Sadly,” he added, “I’m not going to be round to take pleasure in it.”
Mayo additionally acknowledged Morgan Stanley’s “run of success” since a decade in the past, which he attributed to each Gorman’s management and Decide’s turnaround inside the fixed-income buying and selling division.
“I simply sense a level of overconfidence within the latest [earnings] calls,” he mentioned.
“It is a tone change. And I will inform you this tone change is evening and day, from a decade in the past.”
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