Investors expressed their skepticism towards Morgan Stanley’s new CEO, Ted Pick, as the firm’s stock witnessed a significant 4% decline on the day of Pick’s earnings debut. The Wall Street giant reported a 32% drop in profits for the fourth quarter compared to the same period last year. The decrease was attributed mainly to charges related to a Justice Department settlement and a special assessment paid to the FDIC.
While revenues from investment banking and trading showed an increase, wealth management revenue remained relatively flat year-over-year. A notable concern for investors arose from the disclosure that lower margins in Morgan Stanley’s wealth management business might persist in the near future.
Ted Pick assured that the division would eventually achieve pre-tax margins of 30%, but the reported margin for the entirety of 2023 was 24.9%, despite adding $282.3 billion in net new assets. In the fourth quarter alone, the margin was 21.5%, even with an addition of $47.5 billion in net new assets.
Investors seemed cautious due to recent macroeconomic challenges and ongoing growth investments, leading Pick to indicate that reported margins might consolidate in the mid-20s range over the short term. The sharp drop in Morgan Stanley’s stock on Tuesday marked its most significant single-day decline since October 18, with an overall 8% decrease since Ted Pick assumed the role of CEO on January 1.
During the earnings call, Pick emphasized continuity, stating that there would be no change in strategy compared to his predecessor, James Gorman. He reiterated the four goals set by Gorman, which include achieving a 30% margin in the firm’s wealth management business, reaching $10 trillion in assets for wealth and investment management, attaining a 70% firm-wide efficiency ratio, and achieving a 20% return on tangible equity.
Despite the challenging start, Pick expressed confidence in meeting these targets, underscoring the similarity between his style and that of Gorman. Pick acknowledged Gorman’s positive mindset and praised how he brought consistency, rigor, and durability to Morgan Stanley’s operations during a critical period in the aftermath of the 2008 financial crisis.
In addressing concerns about revisiting challenging times, Pick affirmed the firm’s determination to avoid any recurrence of the difficulties faced during the financial crisis, referring to it as “our moment before the abyss.”
