Morgan Stanley Clears Lowered Expectations But Profit, Revenue Fall -- 2nd Update
July 20 2016 - 8:52AM
Dow Jones News
By Peter Rudegeair and Liz Hoffman
Morgan Stanley said its profit fell 12% in the second quarter as
the company weathered volatile markets that affected its investing
and corporate clients.
Earnings and revenue beat subdued expectations, pushing shares
up 3.2% premarket.
The bank's net income declined to $1.58 billion, or 75 cents a
share, from $1.81 billion, or 85 cents a share, a year ago.
Analysts polled by Thomson Reuters had expected a per-share profit
of 59 cents.
Revenue tumbled 8.6% to $8.91 billion, topping the $8.3 billion
forecast by analysts.
Morgan Stanley, the last of the major U.S. banks to report
earnings, didn't get the trading bump most of its rivals reported.
Trading revenue fell 7.1% to $3.26 billion from $3.5 billion a year
ago. Excluding an accounting adjustment, trading revenue fell
2%.
Still, analysts expected an even sharper drop. In
stocks-trading, where Morgan Stanley has long been Wall Street's
leader, revenue fell 5% excluding an accounting adjustment, though
the bank gained market share from its chief rival in the space,
Goldman Sachs Group Inc.
Revenue in fixed-income trading rose 2%, excluding an accounting
adjustment, the smallest bump of any of the big trading banks.
Investment-banking revenue fell 23% to $1.11 billion from $1.44
billion in the second quarter of 2015. Fees from advising on
mergers and other deals rose 17% to $497 million from $423 million
a year ago. Revenue on stock and bond underwriting slipped 40% to
$611 million from $1.02 billion in the same period a year
prior.
Morgan Stanley Chairman and CEO James Gorman has been working to
boost profitability by trimming the capital committed to bond
trading desks and boosting loans to investing clients of the firm's
large wealth management division. Earlier this year, the firm also
disclosed its aim to cut $1 billion in expenses, a theme that has
gained momentum at banks from Goldman Sachs to Bank of America
Corp. this quarter.
Morgan Stanley showed progress on both of those goals in the
second quarter. Firmwide expenses fell 8.4% to $6.43 billion from
$7.02 billion in the second quarter last year. Cost from employee
pay and benefits fell 8.9% to $4.02 billion from $4.41 billion.
Loans to wealth-management clients grew 19% to a record $69
billion. Along with a double-digit increase in corporate loans, the
bank's loans book grew 6% to $198 billion, which helped boost net
interest income 31% from last year to $913 million.
Return on equity declined to 8.3% from 9.1% in the second
quarter of 2015. Morgan Stanley executives have pledged to lift
returns to 9%-11%.
Morgan Stanley shares have tumbled 11% this year as investors
fretted over the firm's ability to weather the slowdown. Other
banks reported better-than-expected trading results in the second
quarter, driven in part by a burst of client activity around the
U.K. vote to leave the European Union in June.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and Liz
Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
July 20, 2016 08:37 ET (12:37 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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