By Liz Hoffman
Morgan Stanley's third-quarter profit rose 3% from a year ago,
the last major U.S. bank to skate through a period of global
tensions and shifting markets.
The bank's profit of $2.17 billion, or $1.27 a share, on $10.03
billion in revenue, was helped by a one-time tax benefit. It was
better than investors were expecting and sent shares up 1.52% on
Analysts polled by FactSet had expected a profit of $1.83
billion, or $1.11 a share, on $9.59 billion in revenue. Morgan
Stanley picked up 6 cents a share in earnings thanks to lower
taxes; accounting for that, profit was down 5% from a year ago.
"We remain cautious today, as trade talks swirl and
interest-rate paths continue to be debated," Chief Executive James
Gorman said. "But expect us to look beyond the next few
Morgan Stanley is the last of the big U.S. banks to report
earnings for the third quarter, a stretch in which two Federal
Reserve interest-rate cuts and growing global tensions upended the
relative calm and easy financial policies that have helped banks
thrive in recent years.
The results were mixed: JPMorgan Chase & Co. and Citigroup
Inc. sailed through on the backs of their big consumer banks.
One-time charges muddied the results at Bank of America Corp. and
Wells Fargo & Co. Goldman Sachs Group Inc.'s expensive pivot
into Main Street banking ate into profits.
Morgan Stanley's return on equity, a measure of profitability,
was 10.7% for the quarter, accounting for the tax benefit, versus a
range of 8.5% to 15% at peers.
Mr. Gorman, in the job since 2010, is in the late innings of a
multiyear turnaround. He cut costs, shrank the company's trading
division and doubled down on wealth management, a steadier business
that now accounts for nearly half of Morgan Stanley's revenue.
He has sounded more acquisitive in recent months but must
contend with skeptical investors. Morgan Stanley's shares trade
below the net value of its assets, which makes it a lousy currency
to use in any takeover, particularly in asset management, an area
Mr. Gorman has been scouting and where stocks tend to be more
On Thursday, he escalated a long-running gripe with regulators:
that Morgan Stanley is still being treated like the Wall Street
problem child it was during the financial crisis.
"One ongoing challenge of our continued pursuit of higher
[returns] has been the amount of equity we're required to hold,
despite how we've repositioned the firm," he said.
Morgan Stanley's total assets crossed $900 billion at the end of
the quarter for the first time since 2008 and executives appear
itchy for a sign that regulators will let it keep growing.
The firm already tested the waters in Washington this year by
acquiring Solium Capital, a startup that manages stock that
corporate employees receive as part of their pay.
"We have the capacity to grow," Chief Financial Officer Jonathan
Pruzan said in an interview. "The question is what the Fed is going
to tell us and when they're going to tell us."
Solium is intended to funnel new clients into Morgan Stanley's
giant wealth-management division, which manages $2.6 trillion. Its
15,500 brokers have pivoted in recent years from plugging stocks
and earning trading commissions to charging a flat fee to advise
people on how to invest.
Analysts have warned that price wars between discount brokerages
could creep into the wealth-management business, as firms such as
Charles Schwab Corp. try to recoup lost commissions by edging into
advice. Mr. Gorman dismissed those concerns, suggesting that
discount firms weren't sophisticated enough to handle the
"It's complicated stuff and being wrong absolutely overwhelms a
few basis points on the fees," he said. Morgan Stanley is focused
on households with more than $10 million to invest, which Mr.
Gorman said require more complicated advice on trusts, family
foundations and taxes: "That's where the advice fee is very fair,"
Revenue from investment banking rose 5% from a year ago as a
funk settled over what had been a red-hot run for stock offerings.
Equity underwriting fees fell 9%, offset by a rise in revenue from
mergers and debt placements. Mr. Pruzan cited a notable decline in
initial public offerings, which are on track for their worst year
since 2016, according to Refinitiv.
Morgan Stanley's asset-management arm reported 17% higher
revenue, though it remains a blip on the firm's bottom line. It
took in new money in both stock and debt funds, though market-price
declines ate into those flows and assets ticked up just 2% from the
end of June.
A 1% drop in stock trading revenue puts Morgan Stanley in the
middle of the pack this quarter but strong enough to defend its No.
1 position in that business. In fixed-income trading, revenue was
up 21% from a year ago but fees across Wall Street keep falling,
validating for now Morgan Stanley's decision to shrink that
"Two years I thought we'd hit the low point, then last year was
smaller, " Mr. Pruzan said of fixed-income fees industrywide. "The
market isn't growing."
Write to Liz Hoffman at firstname.lastname@example.org
(END) Dow Jones Newswires
October 17, 2019 17:26 ET (21:26 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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