Morgan Stanley's Net Interest Income To Slump 14% In FY24: Analyst Cautions

BMO Capital Markets analyst James Fotheringham reiterated the Outperform rating on Morgan Stanley MS, trimming the price target to $101 from $102.

The bank reported a Q3 net profit of $2.4 billion, or $1.38 per diluted share, compared to a net income of $2.6 billion or $1.47 in the prior year. 

The company reported revenues of $13.27 billion, beating the consensus of $12.58 billion.

Despite MS's broad-based 3Q23 beat, Fotheringham lowered estimates by as much as 2% (lower NII and higher credit costs) as NII, a key margin driver for the WM segment, declined -9% sequentially as deposit sweep balances fell.

Higher funding costs resulted from lower deposit sweep balances (down -10% sequentially) as WM clients moved cash to higher-yielding accounts, the analyst adds.

MS expects NII to fall further but did not specify timing or magnitude; relative to consensus (2024 WM NII -9% YoY), the analyst forecasts a more marked decline (-14%).

Fotheringham also raised provision forecasts, given higher credit losses on office CRE loans.

The analyst lowered MS core EPS estimates by -1% in 2023 (to $5.72 from $5.78) and -2% in 2024 (to $7.01 from $7.14) due to lower-than-previously modeled NII (WM) and higher credit provisions (CRE). 

Fotheringham's 2025 estimate is essentially unchanged at $8.49 (was $8.47).

On the positive side, MS still expects to reach 20%+ RoTCE (14% in 3Q23) and 30% WM pre-tax margins (28% in 3Q23) despite funding pressures and capital regulations (and assuming further expense initiatives and normalization of capital markets activity).

Price Action: MS shares are trading lower by 1.82% to $73.52 on the last check Thursday.