Morgan Stanley reports more assets, less revenue to start 2022

Assets up, revenue down for Morgan Stanley Wealth Management

April 14, 2022 7:34 PM

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Despite lower net revenues in its wealth management business and overall during the first three months of 2022, Morgan Stanley CEO James P. Gorman credits his firm for strong performance amid “market volatility and economic uncertainty.”

But the company still had plenty to celebrate in Q1, including profits that outperformed estimates and a wealth management arm that once again saw new net assets increase, according to first -quarter earnings statements released Thursday.

“Institutional securities navigated volatility on behalf of clients extraordinarily well, wealth management’s margin proved resilient and the business added $142 billion net new assets in the quarter, and investment management benefited from its diversification,” Gorman said in a statement. “The quarter’s results affirm our sustainable business model is well positioned to drive growth over the long term.”

Scroll down for some of the key takeaways from Thursday’s earnings report and call.

Better than expected

Morgan Stanley reported net revenues of $14.8 billion for the first quarter of 2022, down from $15.7 billion reported one year ago, but still good enough for the firm to deliver its second-highest-ever quarterly net revenues.

The bank posted net income of $3.7 billion, or $2.02 per diluted share, compared to $4.1 billion, or $2.19 per diluted share, for the same period a year ago. According to a Bloomberg survey, analysts expected revenue to drop to $14.2 billion, and net income to $1.71 per diluted share.

“Results of the first quarter illustrate resiliency and durability,” Morgan Stanley Chief Financial Officer Sharon Yeshaya said during the firm’s earnings call with analysts, according to a transcript by Seeking Alpha. “Wealth management proved resilient, and investment management benefited from diversification.”

Wealth management ups and downs

Morgan Stanley Wealth Management reported net revenues of $5.935 billion, down 5% from the final quarter of 2021 and flat when compared to a year ago.

Officials said asset management revenues increased 14%, reflecting higher asset levels driven by positive fee-based flows and market appreciation. Meanwhile, transactional revenues dropped by 20%, excluding “mark-to-market losses on investments associated with certain employee-deferred compensation plans.”

The firm said the results reflect a decrease in client activity from levels that were “significantly elevated” one year ago.

Net interest income increased 10% year over year to $1.54 billion, and profit before taxes grew 11% to $1.57 billion. Officials said the results reflect higher asset management fees and continued growth in bank lending.

Excluding prepayment amortization, net interest income increased 15% from the prior year, driven by loan growth.

“Back in January, we indicated that the fourth quarter net interest income was a reasonable base to inform 2022 and that we would expect $500 million of incremental net interest income on the back of rising rates,” Yeshaya said. “Due to the further moves in rate expectations since January, we should see this benefit at least double if the forward curve and our modeled assumptions are realized over the remaining nine months of the year.”

Assets on the rise

Morgan Stanley’s $142 billion in net new assets for the quarter included the addition of $75 billion in retirement assets through the acquisition of the Denver-based retirement planning firm Cook Street Consulting.

Overall, net assets were up 12% when compared to the fourth quarter of 2021, and up 35% compared to one year ago.

Yeshaya said Cook Street is the second institutional retirement plan to join Morgan Stanley in the last nine months.

“We continue to view these asset acquisitions as incremental opportunities to reach the expanded audience through education and financial wellness,” Yeshaya said. “The acquired team’s client base includes nearly 1 million plan participants. Transactional revenues were $635 million. Excluding the impact of DCP … revenues were strong.”

Yeshaya said the 14% boost in asset management revenues was the product of growth in fee-based assets. Annualized growth was 5.4%, and net new assets came from all channels despite market volatility.

“This growth continues to reflect the investments we have made into the business over time and affirms our strategy is working,” she said.

A word on the war

During Thursday’s earnings call, Gorman also took a moment to discuss the Russian invasion of Ukraine, saying when managing a global business, one must “remain vigilant about the potential for shocks or unexpected events.”

“Obviously, the invasion of Ukraine is one such event. First of all, and most importantly, our hearts go out to the Ukrainians and all those have been impacted,” Gorman said during the call. “As it relates to the business, apart from the volatility it’s created, there’s been very limited financial impact to Morgan Stanley. A few years ago, we decided to give up our banking license, and we significantly scaled back operations in Russia.”

He ended his remarks by saying he is proud of how his team has managed through the difficulty, and affirmed that Morgan Stanley is not entering into any new business in Russia.