Morgan Stanley Tops Goldman in Trading Again -- 3rd Update
July 19 2017 - 9:10AM
Dow Jones News
By Liz Hoffman
Morgan Stanley said its second-quarter profit rose to $1.76
billion as the Wall Street firm's traders delivered strong results,
topping rival Goldman Sachs Group Inc. for the second straight
quarter.
Shares rose 3.5% premarket as earnings and revenue beat the
expectations of Wall Street analysts.
"We feel good about the decisions we've made," Chief Financial
Officer Jonathan Pruzan said in an interview. "To put up those
numbers across the board, in a quarter where we saw fewer market
events, less client activity, feels good."
Morgan Stanley reported earnings of 87 cents a share. Analysts
had expected 76 cents, up from 75 cents a year ago. Revenue of $9.5
billion was up from $8.91 billion in the second quarter of last
year, and well ahead of analyst expectations of $9.09 billion.
The bank run by Chairman and Chief Executive James Gorman is in
the late stages of a multiyear turnaround that de-emphasizes
volatile trading businesses in favor of more stable assets and
wealth management. With the big pieces in place -- buying Citigroup
Inc.'s Smith Barney brokerage, slashing risk-weighted assets, and
firing hundreds of fixed-income traders -- the challenge now is to
produce higher returns.
Mr. Gorman has promised a 10% return on equity by year-end. The
figure stood at 9.1% in the quarter.
Morgan Stanley is the last of the large U.S. banks to report
earnings for the second quarter, a three-month stretch of calm
markets that did little to jolt Wall Street businesses. Big banks
including Goldman, J.P. Morgan Chase & Co., and Citigroup
offset trading declines with gains in other businesses such as
commercial lending or private-equity investing.
Morgan Stanley reported a 2.1% drop in trading revenue, the
smallest decline reported by any big bank this quarter. At Goldman,
whose securities business most closely resembles -- and competes
with -- Morgan Stanley's, trading revenue was off by 17%.
The figure that stands out is $1.24 billion from trading debt,
currencies and other fixed-income products. That business is
traditionally a laggard for Morgan Stanley, with its smaller
balance sheet and history of bungling risk.
But it has been performing better over the past year following a
leadership shake-up that saw its top stock trader, Ted Pick, take
over all of sales and trading. This marks the fifth straight
quarter of $1 billion-plus revenue, a bar set by Mr. Gorman last
year, and once again tops Goldman Sachs, which continues to
struggle in fixed-income trading and posted a 40% decline in that
business Tuesday.
Revenue was flat in stock trading, Morgan Stanley's strength.
The firm has outmaneuvered peers in courting business from
so-called "quant" hedge funds that trade huge volumes of stocks in
fractions of a second.
Morgan Stanley's wealth-management business, which manages about
$2.2 trillion in client assets, took in a best-ever $4.15 billion
in revenue last quarter. The unit's profit margin hit 25%, the high
end of a goal set last year by Mr. Gorman, as it continues to sweep
in client cash and find more profitable uses for it, like
lending.
Loans to wealth clients hit a record $74 billion as of June 30,
with gains across all three major products: mortgages,
securities-backed loans and tailored lending, Mr. Pruzan said. As
interest rates rise, Morgan Stanley is hustling to lend out a
surfeit of deposits it picked up in the multiyear acquisition of of
SmithBarney.
In investment banking, where Morgan Stanley is generally a
top-three player, revenue rose 28%, as big gains in stock and debt
underwriting overcame flat merger fees.
Morgan Stanley's smallest division, investment management,
reported revenue of $665 million, up 14% from a year ago. The
business manages about $435 billion, making it about one-tenth the
size of index-fund giant Vanguard Group.
Unlike rivals, Morgan Stanley offers no index funds that simply
mirror the performance of certain corners of the stock market.
Instead, it is betting on active stock pickers who can beat the
market -- a tall order lately as stock prices have churned
indiscriminately higher.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
July 19, 2017 08:55 ET (12:55 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Aug 2024 to Sep 2024
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Sep 2023 to Sep 2024