Morgan Stanley Reports 9% Decline in Profit -- Update
April 17 2019 - 8:45AM
Dow Jones News
By Liz Hoffman
Morgan Stanley said its first-quarter profit fell 9% from a year
ago, hit by the same trading slump early in the year that hurt
other Wall Street firms.
The bank posted a profit of $2.4 billion, or $1.39 a share, on
revenue of $10.3 billion. Both are lower than the same period a
year ago, when the firm earned $2.7 billion, or $1.45 a share, on
record quarterly revenue of $11.1 billion.
All three figures were ahead of estimates from analysts polled
by Refinitiv, who had predicted a profit of $1.99 billion, or $1.17
a share, on revenue of $9.93 billion.
Shares rose 2.1% in premarket trading. They are down 20% from
highs last spring.
Morgan Stanley wraps up a big-banks earnings season that
investors viewed as mostly underwhelming. Big banks such as
JPMorgan Chase & Co. and Bank of America Corp. fared better as
their giant consumer businesses balanced out slower trading and
capital markets.
James Gorman, Morgan Stanley's chief executive since 2010, has
rebuilt the firm to be able to do well in all kinds of markets. He
doubled down on wealth management, buying Smith Barney, and fired
25% of bond traders and shed risky assets including real estate and
oil tankers. Aided by a benign economic backdrop, the effort has
mostly worked, producing steady profits and few of the ugly
surprises the plagued Morgan Stanley in the past.
That makeover was tested in the first quarter, though.
Stock-trading desks were quieted by calm markets. Revenue in
that business, where Morgan Stanley is the largest on Wall Street,
fell 21%. Merger fees fell 29% as fewer previously announced deals
were completed in the quarter. Bankers get most of their fees upon
closing. Overall investment-banking revenue fell 24%, while rivals
were flat or slightly up.
"There was a little bit of a hangover" from December's market
swoon "and IPO volumes fell off a cliff," Chief Financial Officer
Jonathan Pruzan said in an interview. He said the firm's pipeline
of coming initial public offerings was healthy: "Assuming we
continue to have low volatility in the equity markets and a
constructive backdrop, we expect that to improve."
The stock-market tumble in late 2018 also shaved tens of
billions of dollars of value off the $1.1 trillion in
wealth-management portfolios on which Morgan Stanley charges flat
fees. Revenue in that business was flat from a year ago at $4.4
billion.
Asset management, Morgan Stanley's smallest business and one it
has been trying to grow, posted a 12% revenue increase, though
clients pulled about $6 billion in assets.
Return on equity, a closely watched measure of profitability,
was 13.1%, ahead of Mr. Gorman's medium-term top goal of 13%,
though with the help of a lower tax rate.
Morgan Stanley, with a smaller lending book than peers, is less
sensitive to interest-rate surprises and was less rattled by the
Federal Reserve's signals that it wouldn't raise rates this year.
It has been raising deposits and pushing mortgages and other loans
to its wealth-management clients, but is still small in the lending
business. The bank outsources much of its corporate lending to
Mitsubishi UFJ Financial Group, the Japanese bank that is a 20%
shareholder in Morgan Stanley.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
April 17, 2019 08:30 ET (12:30 GMT)
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