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)
Copyright (c) 2020 Dow Jones & Company, Inc.
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