Analysis

Morgan Stanley Pulled In $232 Billion of New Client Money. The Stock Still Fell 2.75%

Morgan Stanley earned $3.03 a share on record wealth-management revenue and $5.8 billion from equities, beating estimates. The shares opened 3.3% lower and closed at $181.51, their lowest close since April 13.

By most measures, Morgan Stanley's third quarter was excellent. Net revenue rose 11.6% from a year earlier to $20.34 billion, against roughly $19.95 billion expected, and earnings were $3.03 a share against about $2.91. Wealth management, the business the firm has spent a decade building up, produced record revenue of $9.07 billion and brought in $232.4 billion of net new client assets, nearly three times the $81.0 billion of a year earlier.

The trading desk did even better than wealth management in relative terms. Equity revenue in the institutional business was $5.80 billion, up 41% from $4.12 billion, and coverage of the results put it more than $900 million above forecasts. Investment banking edged up to $2.16 billion.

So why did the shares fall? They opened at $180.45, 3.3% below Tuesday's close, touched $176.44, and finished at $181.51, down 2.75%. A few lines in the release point to the answer. Fixed-income revenue slipped 7% from a year earlier, investment management revenue fell to $1.46 billion from $1.65 billion, and return on tangible common equity eased to 22.6% from 23.5%. On a morning when a hot inflation report pushed up the odds of another Fed hike, investors were also less willing to pay for a strong quarter in trading, which can reverse quickly.

BlackRock reported the same morning and was one of the few financial stocks to rise, up 0.72%, after its assets under management grew to $15.49 trillion from $13.46 trillion a year earlier.

Morgan Stanley bought back $1.54 billion of its own stock during the quarter and kept its quarterly dividend at $1.15 a share, payable on November 13 to holders of record on October 30. Its stock has now fallen two days in a row, both times on bank results, and is at its lowest close since April 13.