JPM JP Morgan Chase and Co

By Liz Hoffman 

Morgan Stanley said its profit fell 30% in the first quarter, the last big U.S. bank to lurch through a period of stress wrought by the coronavirus.

The Wall Street firm held up better than its commercial-banking rivals, which took steep losses on business loans and set aside billions of dollars to cover consumer loans they expect to sour.

Morgan Stanley's profit of $1.7 billion, or $1.01 a share, on revenue of $9.49 billion fell just shy of projections by stock analysts, who had revised their estimates downward as the coronavirus pummeled the markets and the U.S. economy. Analysts polled by FactSet expected $1.16 a share, or $1.89 billion, of profit on $9.85 billion of revenue.

Morgan Stanley is the smallest of the six major U.S. banks with few true peers in the bunch, which has left some investors unsure how it will fare in a coronavirus downturn.

Its Wall Street businesses are roughly the same size as Goldman Sachs Group Inc.'s, but its giant wealth-management arm tracks more closely with Bank of America Corp.'s Merrill Lynch unit. It doesn't have a credit-card arm, where JPMorgan Chase & Co. and Citigroup Inc. are steeling for a wave of defaults, and is largely sitting out the government's small-business emergency lending program.

Morgan Stanley's 61-year-old chief executive, James Gorman, spent more than a week in March sickened with the coronavirus, showing the disease's fever and chills though none of its deadly respiratory symptoms.

Both its wealth arm and Wall Street businesses held up well. The bank's quarterly return on equity, a measure of how profitably it invests shareholders' money, was 9.7%, higher than its peers. But the firm said the outlook was uncertain enough that it might not be able to hit financial targets Mr. Gorman had set.

The quarter challenged U.S. megabanks in ways unseen since the financial crisis of 2008. They contended with falling interest rates and wildly swinging asset prices, sorted through unprecedented government intervention in the financial markets, and steeled themselves for a lengthy recession.

"We're in a market where the range of outcomes on two very important things are extraordinarily wide," Chief Financial Officer Jonathan Pruzan said, referring to both the health and economic path of the virus.

"There is a bearish group and a bullish group, so we have active and engaged clients," he said, adding that trading volumes had remained high through the first two weeks of April, though down a bit from their frenzied pace in March.

Profits were sharply lower across the group, with declines ranging from 45% at Bank of America to 89% at Wells Fargo. More pain is likely ahead.

Morgan Stanley's traders, like their rivals at other banks, performed well in the quarter. Revenue in that business rose 30% to $4.9 billion, with gains in both fixed-income, where it is smaller, and stock-trading, where it is the biggest player on Wall Street.

Investment banking, where Morgan Stanley helps companies arrange mergers and sell stocks and bonds, reported $1.1 billion in fees, basically flat from a year ago.

In wealth management, where it handles $2.4 trillion for more than 3.5 million households, revenue was steadier at $4 billion. Mr. Pruzan said about $30 billion of deposits rolled in during March, as clients dumped stocks for the safety of cash. Much of those deposits were redeployed into corporate loans, pushing Morgan Stanley's balance sheet up by $50 billion since the end of December.

The firm charges flat fees on about half of its accounts, based on portfolio values set on the first of each month, which spared it from the steepest of the market declines in March. On the other half, it charges trading commissions and other product fees.

Its smallest business, asset management, reported $692 million in revenue, down 14% from a year ago. When companies get less valuable -- as nearly every company in America has in recent weeks -- funds like those Morgan Stanley runs must reflect those changes.

Morgan Stanley is seeking to complete its takeover of discount broker E*Trade Financial Corp. The takeover was announced on Feb. 20, the day after what would prove to be the peak for the S&P 500 index.

Morgan Stanley shares, Mr. Gorman's currency for the deal, have tumbled alongside the market and the deal, worth $13.8 billion to E*Trade stockholders when it was agreed, is now worth $9.4 billion.

Write to Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

April 16, 2020 08:40 ET (12:40 GMT)

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