Volatile Market Hits Morgan Stanley's Trading, Wealth Management

Morgan Stanley's quarterly profit fell short of expectations as bond trading revenue slumped more than rivals and its wealth management business faltered, sending its shares down 4.4 percent.The bank has pledged that its expansion into wealth management over the past decade would help deliver more stable results. But the unit, which accounts for roughly half of Morgan Stanley's revenue, was not immune from year-end market volatility that drove customers to the sidelines. Morgan Stanley also noted the impact of changes to compensation that addressed what Chief Executive James Gorman called a "very aggressive" deferral program.Gorman said that Morgan Stanley had been “mortgaging (its) future" by delaying payouts.On a call with analysts, Gorman characterized the fourth quarter as a temporary, if disappointing, blip."2018 was a great year that finished on a disappointing note," he said. "We do not believe the fourth quarter is the new normal."Although market volatility hurt trading, underwriting, wealth management and asset management revenue, Morgan Stanley is keeping a tight lid on costs and making purposeful decisions to position itself for growth, he said.The bank held its profit margin outlook for wealth management steady at 26 percent to 28 percent through this year. The business had a profit margin of 24 percent in the fourth quarter and 26 percent for all of 2018.Gorman, who has been pressed by analysts to increase that target, cautioned that the current goal is “not a limit” but that the bank is putting revenue growth in that business ahead of profitability for now.“The trade-off between revenue growth and margin expansion is important,” he said. “This year, we would be more interested in driving higher revenue growth within this margin range that we've been public on.”