Morgan Stanley’s wealth segment posted record revenue of $7.27 billion, a 14% jump from the previous year and up 7% from the second quarter.
The firm’s assets under management for its wealth and investment management arms stood at $7.67 trillion, with $6 trillion in wealth management alone, up 25% year-over-year.
During the firm’s third-quarter earnings call, Morgan Stanley Chief Financial Officer Sharon Yeshaya said total deposits had increased to $358 billion, and the firm had seen recent signs of stabilization among sweep dips, particularly after the Federal Reserve cut interest rates in September, which she called “encouraging.”
However, net interest income was down slightly to $1.77 billion due to “lower average sweeps deposits” buttressed by higher yields in the firm’s investment portfolio. Yeshaya said the firm expected fourth quarter NII to be "modestly down” from this quarter’s results “largely on the back of lower rate expectations.”
However, Yeshaya urged investors to consider the context of sweeps and the NII dips, pointing out that the delta between NII 2024’s third quarter and one year ago was $175 million.
“Asset management fee-based revenues that increased this year is double the decline of NII,” she said. “So we just need to gain a bit of perspective now that we see where sweeps are, that the markets are coming back and that we continue to see asset management fees rise, and that is the durable revenue and what we expect to see from this business model as we move forward.”
According to Morgan Stanley, the firm’s net new assets in wealth were $63.9 billion, 76% and 79% jumps from $36.4 billion in the previous quarter and $35.7 billion in the third quarter of 2023, respectively. Year-to-date net new assets stood at $195 billion, a 5% annualized growth, according to Yeshaya.
During the call, Yeshaya said the growth came from the advisor-led and workplace channels, “with a notable contribution from new clients” in the advisor-led channel. Meanwhile, asset management revenue was $4.3 billion, an 18% year-over-year boost due to the “cumulative impact of positive fee-based flows.”
Though Yeshaya predicted NII would be down in the fourth quarter, she declined to make projections for the coming year, noting that while asset growth and the directional sweeps movement made them optimistic, much of the coming year would depend upon the Fed’s next moves.
“If we go back a quarter ago … it was a very low probability to see a 50 basis point rate cut, and lo and behold, we had one,” she said. “So, why don’t we see where we are after the November and December meetings and then restate where we think we’ll be over the course of the year just from a rate perspective?”
Analysts with JMP Securities were encouraged by the wealth segment results, noting that low-cost brokerage sweep deposits increased 1.6% after notable declines in recent quarters.
“With deposits stabilizing and loan growth picking up within (Global Wealth Management), we see a better intermediate-term NII story than previously modeled,” the JMP report read.
