By Liz Hoffman and Peter Rudegeair
Quarterly profit fell 10% at Morgan Stanley, the last of the big
U.S. banks to report earnings in a mixed quarter where trading
slowed and Main Street banks carried the day.
The bank reported a profit of $2.2 billion, or $1.23 a share, on
$10.2 billion in revenue, both down from a year ago. Analysts
polled by FactSet had expected a profit of $1.9 billion, or $1.13 a
share, on $10 billion in revenue.
Morgan Stanley, the smallest of the major American banks, is the
last to report earnings in a tough quarter for high finance. A
decline in longer-term interest rates, spurred by the Federal
Reserve's recent shift to possibly lower rates, caused some
corporate borrowers to pull back. And global trade tensions quieted
securities trading, even as stock-market indexes plumbed new
"People don't have much conviction, at these levels, in this
rally," said Morgan Stanley's finance chief, Jonathan Pruzan.
Instead, consumer businesses drove higher profits at JPMorgan
Chase & Co., Citigroup Inc., Wells Fargo & Co. and Bank of
America Corp. Morgan Stanley and Goldman Sachs Group Inc., which
also lacks a large consumer presence, were the only two big U.S.
banks to report quarterly profits that were lower than a year
Morgan Stanley has a giant retail brokerage but lacks the
mortgage and credit-card operations that are booming at rivals.
Instead, cost control and gains on principal investments --
including a stake in a trading platform that went public in April
-- helped paper over weaker results in the firm's trading and
investment banking arms.
The bank's return on equity, a measure of profitability, was
11.2%. Other banks ranged from 10% at Citigroup to 16% at
Chief Executive James Gorman has steered Morgan Stanley into
steadier businesses since the financial crisis, doubling down on
money management and cutting riskier kinds of trading. Earlier this
year he struck a deal to buy a software firm that helps corporate
employees manage their finances, and plans to build out Morgan
Stanley's retirement-account offerings.
Mr. Gorman said he isn't getting enough credit for that
transformation. On Thursday, he took aim at new capital rules that
will hit Morgan Stanley harder than some peers. "We're still
suffering from the deeds at this firm 10 years ago, and my attitude
is we're a very, very different firm now," he said. "This is 2019,
The firm kept a lid on expenses, down 3% so far this year, and
was particularly tight in allocating bonuses for its bankers and
traders, whose total accrued compensation for the year so far is
just 35% of the revenue they have made.
The wealth division, which manages about $2.5 trillion for U.S.
clients, reported a 2% rise in quarterly revenue to $4.4 billion.
Twenty-eight percent of that dropped to the bottom line in profit,
a record for Morgan Stanley and above the range Mr. Gorman set out
to crack three years ago.
Trading revenue fell 12% from a year ago. Stock trading revenue
fell 14% to $2.13 billion, still good for first among big banks.
Morgan Stanley jealously guards its pole position in equities,
having spent heavily on technology in the early 2010s to dethrone
The firm said hedge funds borrowed less in the quarter, a sign
they aren't sure enough of which way markets are heading to juice
their bets with debt.
Meanwhile, revenue was down 18% in fixed-income trading, where
Morgan Stanley is smaller than peers after firing a quarter of the
staff in 2016 and trimming assets.
Morgan Stanley's investment-banking revenue fell 13%, though
executives said its pipeline of unannounced deals was full. Morgan
Stanley is a big merger adviser and stock underwriter, and so tends
to feel slowdowns there more acutely than rivals.
Across the industry there were 8% fewer completed M&A deals
in the quarter, collectively worth nearly 50% less, compared with a
year earlier, according to FactSet. And while a flood of highly
anticipated technology companies went public this spring, issuance
of secondary shares and convertible bonds has been slower than in
The biggest gains came from Morgan Stanley's asset-management
arm, where revenue grew 21%. Growing that business, which manages
just under $500 billion and is a blip on the firm's bottom line, is
a priority for Mr. Gorman, who has hinted he would like to do a
Morgan Stanley's total deposits grew 2% to $177 billion while
loans grew 4% to $258 billion, led by mortgages. Morgan Stanley has
been rebooting its home-lending operation, which was for years a
problematic and small business that it outsourced. In 2017 it
brought the effort in-house and recently began pricing loans more
"We slowed it down to make sure that we got it right and now
we're in a better position," Mr. Pruzan said Thursday.
The move is part of the firm's push into plain-vanilla banking,
to get at what it estimates is $2 trillion that its individual
clients keep at other banks. A decade after converting into a bank
holding company during the financial crisis, Morgan Stanley still
doesn't issue its own credit cards, write many mortgages or offer
competitive savings and checking accounts.
The stock was up 0.2% in morning trading.
Write to Liz Hoffman at firstname.lastname@example.org and Peter Rudegeair
(END) Dow Jones Newswires
July 18, 2019 11:18 ET (15:18 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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