Morgan Stanley's Brokers Push Its Profits Higher -- 2nd Update
January 18 2018 - 8:57AM
Dow Jones News
By Liz Hoffman
Morgan Stanley said its fourth-quarter profit rose 14%,
excluding a tax charge, as its retail brokers and investment
bankers compensated for lower trading revenue.
Morgan Stanley, the last of the big Wall Street firms to give
its quarterly numbers, earned 84 cents a share, excluding a
one-time charge of $990 million related to the new tax law, which
has hit each of the big banks to varying degrees. Analysts had
expected earnings of 77 cents a share.
Including the tax charge, which was lower than Morgan Stanley
had indicated, the firm earned $686 million, or 29 cents per
share.
Revenue rose to $9.5 billion from $9.02 billion in the year-ago
quarter. Full-year revenue of $37.9 billion was 10% higher from
2016, the biggest such jump among large banks. Revenue rose between
2% and 5% at the firm's five peers.
Shares of Morgan Stanley, up 29% over the past year, rose 1.5%
to $56.15 in premarket trading.
In fixed-income trading, a former problem division that Morgan
Stanley sharply cut two years ago in an effort to improve
profitability and focus, revenue was down 45%, failing for the
first time in nearly two years to clear a $1 billion bar set by
Chief Executive James Gorman.
"Very, very quiet," finance chief Jonathan Pruzan said of the
quarter. Few catalysts spurred clients to make bets on the
direction of markets, which translates into lower revenue for Wall
Street securities operations.
Goldman Sachs Group Inc. on Wednesday reported a 50% decline in
fixed-income revenues. Other large banks reported smaller
double-digit declines in the business, which includes commodities,
currencies and credit.
Morgan Stanley held its ground in stock-trading, where it is
Wall Street's market share leader. Revenues rose 2%.
One area of weakness: Merger advisory revenues were down 6%,
widening the deficit between it and rival Goldman, which on
Wednesday posted a 9% rise in that business to cement its role as
Wall Street's top M&A shop. More than $1.1 billion in
trailing-year revenue now separates them, the widest gap in two
years.
Morgan Stanley's X-Factor, though, is increasingly its giant
retail brokerage, which oversees $2.4 trillion for some 3.5 million
American households.
Revenue in that business rose 10% to $4.4 billion. The
division's profit margin, once in the high single digits before Mr.
Gorman embarked on a multiyear turnaround that included the
purchase of Smith Barney, ticked up a percentage point to 26%.
Mr. Pruzan said broker attrition and hiring, which are both
expensive, have fallen. Morgan Stanley and rivals including Bank of
America Corp.'s Merill Lynch unit and UBS Group AG have effectively
called a truce on a yearslong poaching war, which has ruffled some
brokers but is likely to reduce costs.
Morgan Stanley's wealth management business gets a growing chunk
of its revenue from steady fees. These are assessed as a percentage
of client portfolios whose value has marched higher with the stock
market rather than those that charge commissions, which have
dwindled as investors favor passive indexing strategies.
Assets in accounts on which Morgan Stanley earns management fees
hit $1.05 trillion, a record percentage of total client assets.
Morgan Stanley's return on equity, a key measure of how
profitably it invests shareholders' money, stood at 8.6% in the
quarter and 9.4% for the year, excluding the impact of the tax hit,
within Mr. Gorman's goal of 9% to 11% this year.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
January 18, 2018 08:42 ET (13:42 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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