Morgan Stanley Stock in Focus as Wealth Unit Probed by Regulators—Key Levels to Watch

Morgan Stanley (MS) shares slipped more than 5% Thursday after The Wall Street Journal reported that multiple regulators are probing the investment bank’s wealth management arm about its client vetting processes.

According to the Journal, The U.S. Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), and other Treasury Department offices are investigating how the bank’s wealth division screens prospective clients who are at high risk of money laundering. News of the probes comes at a time when the Federal Reserve is also scrutinizing how Morgan Stanley manages risky clients.

In particular, regulators are looking at whether the bank has taken sufficient steps to verify clients’ identity and determine how high net worth individuals and entities have accumulated their wealth. The probes also relate to how the unit tracks clients’ financial activity, with a focus on international clients, people familiar with the matter told the Journal.

Morgan Stanley’s wealth arm, which generates about half the bank’s total revenue, has underpinned its strategy since the global financial crisis. In 2009, the bank acquired a 51% stake in Smith Barney from Citigroup (C) before purchasing the remainder of the business in 2013. 

More recently, it acquired online discount broker E*Trade in 2020, helping the New York-based firm oversee total assets of about $5 trillion and overtake rival investment bank Goldman Sachs (GS) in terms of market capitalization. Morgan Stanley reports its first quarter earnings next Tuesday before the opening bell.

After bottoming out below $70 in late October last year, the Morgan Stanley share price had a V-shaped recovery to trade back above the 200-day moving average. However, sellers rejected a recent attempt to breakout above a key multi-month trendline, raising the possibility of a bull trap. Moreover, Thursday’s news-driven sell-off occurred on the highest share turnover since early March, indicating conviction behind the move. 

Amid further selling pressure, investors should monitor if the stock can hold above a zone of support situated between a horizontal trendline and the 200-day moving average located from $83 to $85.

Morgan Stanley shares fell 5.3% to $86.84 during Thursday’s trading session. The stock lost an additional 0.4% to $86.46 in after-hours trading.

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As of the date this article was written, the author does not own any of the above securities.