Morgan Stanley profit dips as struggles with investment banking slowdown continues

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Morgan Stanley has been accused of making up a fake job title for one of its employees in an attempt to trick EU regulators into believing it had moved top execs to Europe to meet post-Brexit rules.
The Financial Times reported that a German banker, who was hired in 2021 as an executive director, the rank below managing director, was given the title 'head of loan trading', but was allegedly told not to actively use the title.

Morgan Stanley reported a fall in profit as an increase in bad loan provisions and a higher wage bill offset a strong performance from the bank’s wealth management arm.

In the three months to September, profit at the investment banking giant fell to $2.4bn compared to $2.6bn in the same period last year. This was marginally higher than analysts had predicted.

Despite an increase in revenue, profit still slipped in the quarter thanks to higher costs. Provisions for bad loans climbed by $100m reflecting “deteriorating conditions in the commercial real estate sector”.

Compensation expenses meanwhile climbed to $5.9bn from $5.6bn in the same period last year.

Over recent months Morgan Stanley has struggled with the slowdown in capital markets activity, and investment banking revenue fell again in the third quarter.

Across the bank’s institutional securities division, which houses the bank’s investment banking arm, pretax income dropped to $1.2bn compared to $1.6bn a year ago. The bank confirmed that the fall in dealmaking had knocked advisory revenues.

However, a stronger performance from the bank’s wealth management division helped to offset falling revenue from its core investment banking business.

Revenue in wealth management climbed to $6.4bn from $6.1bn last year, helping to bring revenue overall to $13.3bn, two per cent higher than last year.

The bank has looked to diversify its business away from investment banking, which can be a very volatile source of revenue.

Chair and chief executive James Gorman noted that the market environment had remained “mixed” but pointed out that “both wealth and investment management produced higher revenues and profits year-over-year.”

Fellow investment banking behemoth Goldman Sachs reported yesterday that profit had fallen 36 per cent year-on-year. Goldman has failed to develop alternative sources of revenue despite its expensive foray into consumer banking, meaning it is particularly susceptible to slowdowns in capital markets.