Morgan Stanley Wealth Management Revenue Dips 6% in Q2

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Morgan Stanley’s net revenue in its wealth management business dropped 6% year-over-year, according to the bank’s Q2 earnings report, though the company’s chief financial officer attributed the dip to issues with “certain employee deferred compensation plans” and said that without this hindrance, the division would have seen a record quarter.

In total, net revenue was at $5.7 billion, according to the earnings report released on Thursday, down from about $6.1 billion in the previous year’s second quarter. The net revenue marked a slight dip from Q1, when it stood at $5.9 billion, according to the Q1 report.

Net income for the wealth management unit also dipped 6%, from $1.26 billion in Q2 2021 to $1.19 billion in the second quarter of this year, according to the earnings statement.

Net new assets in Q2 were about $53 billion, a drop from $71.2 billion in Q2 of 2021. In Q1 2022, net new assets totaled $142 billion, with the high number attributed in part to the acquisition of the retirement firm Cook Street Consulting. In an earnings call Thursday morning, Chief Financial Officer Sharon Yeshaya noted 2022’s total new assets thus far stood at $195 billion, a 6% annualized growth rate. 

Yeshaya attributed this asset growth to “existing and new clients in the advisor-led channel, stock plan investing events, positive net recruiting and self-directed channel inflows,” according to a transcript of the call supplied by Morgan Stanley. During the call, the CFO argued an assessment of the company’s earnings “reaffirmed the stability of the franchise against the challenging backdrop” of increased market volatility.

“The integrated investment bank continues to serve clients’ evolving needs in a dynamic environment,” she said. “Wealth management benefited from its scale and rising rates, despite the decline in global asset prices, (and) our expanded product set in Investment Management proved supportive to that business.”

According to Yeshaya, the dip in revenue was “meaningfully impacted” by the movement in deferred compensation plans, with the CFO arguing it lowered revenue by $515 million in the quarter. Without this dip, Yeshaya argued revenue would have increased by 6% from the prior year, to a record of $6.3 billion.

The division’s asset management revenue jumped by 2% year-over-year from $3.4 to $3.5 billion, due in part to “continued positive fee-based flows,” though this number was “partially offset” by market losses compared to the prior year, according to the earnings report.

Transactional revenue went down 17%, excluding the aforementioned losses due to some employee deferred concentration plans, while net interest income increased by 39% from the prior year due to higher interest rates and continued boosts in bank lending. 

Total expenses declined year-over-year from $4.4 to $4.2 billion, with a dip in compensation expenses from $3.3 to $2.9 billion. Non-compensation expenses slightly jumped over the year from $1.2 to $1.3 billion, which Morgan Stanley attributed to “investments in technology, as well as higher marketing and business development costs and integration-related expenses.”

Finally, total client assets were at $4.3 trillion, down from $4.8 trillion in the first quarter of the year, according to Morgan Stanley. 

For the firm as a whole, net income was $2.5 billion, or $1.39 per diluted share, compared with net income of $3.5 billion, or $1.85 per diluted share for the same period a year ago.