Morgan Stanley’s new chief executive officer, Ted Pick, received a skeptical welcome from investors, who are turning their attention to the firm’s ability to meet its goals in its expanding wealth business.

The bank’s shares dropped the most in three months as its traders fell short of expectations and executives said lower wealth-management margins may stick around. The unit reported a pretax margin of 24.9% for the full year, and Chief Financial Officer Sharon Yeshaya said on a conference call with analysts that “it’s reasonable to expect reported margins to consolidate in the mid-twenties range over the near term.”

This month marks the start of a new era at Morgan Stanley after Pick took over from longtime Chief Executive Officer James Gorman. He takes the helm of a firm that has redefined itself over the past decade but now faces more questions about its ability to keep growing faster than competitors. Pick said Tuesday that the wealth business will drive Morgan Stanley’s growth, and that the unit’s pretax margin will be able to eventually reach 30%.

“The wealth business is actually in my blood. My dad and my father-in-law were both brokers once upon a time. And I grew up studying that business as a kid,” Pick said on a conference call with analysts. “This will be the engine for further Morgan Stanley growth.”

Morgan Stanley shares dropped 3.8% to $86.30 at 10:15 a.m. in New York, their biggest slump in intraday trading since mid-October, making the firm the day’s worst performer in the KBW Bank Index. Last year, the shares climbed almost 10%, compared with a decline of nearly 5% for the index.

Net revenue from the wealth unit totaled $6.65 billion, higher than analysts’ expectations of $6.4 billion. That business has been aided by climbing interest rates that have helped boost net interest income. Despite beating analysts’ estimates, net new assets in the wealth unit remained under $50 billion for a second straight quarter. That pace would leave Morgan Stanley shy of the more than $300 billion a year target it has sought to grow the business.

“We’ve always said it would be lumpy,” Yeshaya said in an interview. “What’s most interesting to me is that net new assets are coming from new clients.”

Despite the slowdown in the past six months, Yeshaya noted that asset inflows were at the top end of the range the New York-based bank had spelled out at the start of 2023.

Outside of wealth management, Morgan Stanley’s traders also had a disappointing quarter. The firm’s fixed-income trading business posted $1.43 billion in revenue, compared with estimates of $1.48 billion. In equities, revenue totaled $2.2 billion, compared with analysts’ $2.26 billion forecast.

Investors are turning their focus to a revival of key Wall Street operations after a period of rapidly climbing rates fueled big-bank profits with increasing net interest income. The largest US lenders took turns last week warning about the future of their biggest source of revenue, with Wells Fargo & Co. predicting a 9% slide in that key metric this year.

Morgan Stanley last week resolved a long-running probe into its block-trading business that had become a successful piece of its prized equities business. The firm agreed to pay $249 million to the US Justice Department and the Securities and Exchange Commission as part of the resolution.

As the Federal Reserve signals it’s close to its peak rate, and bankers tout pent-up demand for mergers and more conducive markets, hopes of an investment-banking revival have taken hold.

Fees from advising on deals totaled $702 million, compared with estimates of $535 million. Equity-underwriting revenue stayed muted at $225 million. Yeshaya pointed to the quarter’s advisory revenue as a sign of improving dealmaking activity that will flow through the rest of the year.

“We’ve been investing on the IBD side,” she said, referring to the dealmaking business and a desire to edge out rivals in the next wave of corporate consolidation.

Companywide revenue totaled $12.9 billion, compared with estimates of $12.7 billion.

This article was provided by Bloomberg News.