The wealth management business, which has been a bright spot for Morgan Stanley in recent quarters, has reduced the lender's reliance on trading and investment banking, which are largely tied to economic cycles.
"While the market environment remained mixed this quarter, the firm delivered solid results," CEO James Gorman said in a statement. "Our equity and fixed income businesses navigated markets well, and both wealth and investment management produced higher revenues."
Net revenue from wealth management rose nearly 5% to $6.4 billion, while its net new assets shrank to $35.7 billion from $64.8 billion a year earlier.
Morgan Stanley's profit dropped about 9% to $2.4 billion, or $1.38 per diluted share, for the three months ended Sept. 30. Analysts had expected a figure of $1.28 per share, according to LSEG IBES data.
INVESTMENT BANKING
Revenue from investment banking fell 27% to $938 million, as global mergers and acquisitions activity showed few signs of improvement due to rising interest rates, antitrust scrutiny and an uncertain economic and geopolitical outlook.
The company's shares were down 2.7% at $78.15 before the bell.
Commenting on lower investment banking revenues, specially in debt capital markets, Morgan Stanley CFO Sharon Yeshaya said they cannot be compared to rivals due to different considerations of allocation of capital.
"It is not a decision purely on fees, but capital allocation."
Revenue from initial public offerings also fell for Morgan Stanley. The bank was not an underwriter for the two high-profile IPOs in the quarter - SoftBank-backed chip designer Arm Holdings and grocery delivery app Instacart (CART.O).
Investment banking revenue is expected to improve over the next quarters considering a strong pipeline of M&A transactions in industries such as finance, energy, technology and artificial intelligence, Yeshaya said.
The bank is not seeing an impact at the moment of geopolitical uncertainties on the M&A pipeline, she added.
Lower activity took fixed income revenues down 11%. Equity revenues, however, inched up 2% driven by gains on investments.
CRE WEAKNESS
Morgan Stanley also set aside $134 million in provisions for credit losses, surging from $35 million in the same quarter last year, driven by worsening conditions in commercial real estate (CRE).
The bank has been proactive in provisioning for CRE losses and the total exposure is less than 5% of the credit portfolio, Yeshaya said, adding that most of the credit has collateral.
The results round out a largely upbeat reporting season for Wall Street's biggest banks, which benefited from rising income from interest payments.
Profit at rival Goldman Sachs also dropped less than expected in the third quarter.
