Morgan Stanley profit hit by charges, revenue beats estimates

By Manya Saini and Tatiana Bautzer

(Reuters) - Morgan Stanley's fourth quarter profit took a hit from $535 million in charges though revenue beat expectations on Tuesday as debt underwriting fueled a rebound in investment banking.

Its shares fell 3% after the results, which compared with rival Goldman Sachs whose profit for the quarter beat estimates as its equity traders capitalized on a market recovery and revenue from asset and wealth management rose.

Morgan Stanley's net income fell to $1.5 billion, or 85 cents per diluted share, in the three months ended Dec. 31, compared with $2.2 billion, or $1.26 per diluted share, a year earlier.

"We remain constructive on the year ahead," new CEO Ted Pick said in his first earnings conference call after taking the helm this month.

He cited growing pipelines for deals and share offerings, improving boardroom confidence and a more positive tone from retail and institutional clients.

Pick, however, warned that two major downside risks could disrupt that view: the intensification of geopolitical conflicts and the state of the U.S. economy.

Changes in the long term goals, "as well as a lower previously expected near-term wealth management pre-tax margin, seems to be weighing on its shares," said Barclays banking analyst Jason Goldberg.

"Still, looking out, we believe MS is well positioned to benefit from a rebound in investment banking fees while it continues to grow client assets.”

Morgan Stanley is among the banking giants that are paying special fees to replenish a government deposit insurance fund that was drained by almost $16 billion after the collapse of two regional lenders last year.

It took a combined $535 million in charges, which included $286 million in a special assessment fee to the Federal Deposit Insurance Corp. Other $249 million in legal charges were related to the settlement of a government probe on block trading practices.

Earlier this month, Morgan Stanley announced it agreed to pay the fine to end years-long criminal and civil investigations into its handling of large stock trades for customers.

The bank also charged $405 million in mark-to-market losses on corporate loans, including financing for Elon Musk's purchase of Twitter, Chief Financial Officer Sharon Yeshaya said in an interview with Reuters.

"We are not changing our guidance to 2024, and we are optimistic and working on a premise of a soft landing," she said.

Investment banking revenue rose 5% in the fourth quarter from a year ago, outperforming peers. Fixed income underwriting revenue jumped 25% on higher investment grade issuance.

Group revenue came in at $12.9 billion compared with analysts' expectations of $12.75 billion, according to LSEG data.

SLOWDOWN IN WEALTH MANAGEMENT?

Morgan Stanley's former CEO James Gorman, who became executive chairman at the start of the year, turned the bank into a wealth management powerhouse that was less dependent on volatile revenue from trading and investment banking.

In his first strategic update as CEO, Pick reiterated the target set by his predecessor of reaching $10 trillion in assets under management.

He praised Gorman's "positive mojo." Asked about his management style, Pick said he and the bank's long-tenured leaders were determined to create durable and consistent performance to meet their targets.

Revenue in wealth management was flat at $6.65 billion compared to last year.

Morgan Stanley's fixed income and equity revenue were also flat in the fourth quarter.

The results compare with fellow Wall Street giants that reported lower profit on Friday, clouded by special charges and job cuts.

(This story has been refiled to fix a typo in paragraph 4)

(Reporting by Manya Saini in Bengaluru and Tatiana Bautzer in New York; Editing by Lananh Nguyen, Arun Koyyur and Emelia Sithole-Matarise)