Morgan Stanley's earnings fall short, but trading exceeds market volatility estimates

Morgan Stanley’s earnings fall short, but trading exceeds market volatility estimates

Morgan Stanley made a profit for the first quarter on Thursday that missed analyst expectations and warned that a single bright spot for the industry, robust trading results, may prove volatile.

The said the bank Earnings declined 30% to $ 1.7 billion, or $ 1.01 per share, compared to the $ 1.14 analyst estimate that Refinitiv surveyed. Operating revenue of $ 9.49 billion was also below the estimate of $ 9.73 billion. Morgan Stanley shares fell less than 1%.

Morgan Stanley said the coronavirus pandemic had an impact on each of its large companies, causing turmoil in the financial markets that affected the value of loans, investments and some trading assets, and lowered interest income and investment banking costs. In early 2020, that was partially offset by robust trading results that took advantage of sudden volatility, but the bank warned that the boost could ease as the crisis progresses.

“While we cannot estimate the magnitude of the impact, a longer period of depressive economic activity required to combat the disease, and the severity and duration of the related global economic crisis, will negatively impact our future business results and achieving our financial targets, “the bank warned. It added that the new environment may have” many of the same negative effects and without the potential benefit of higher trading activity for customers in the first quarter. ”

The company’s massive asset management division posted revenues of $ 4.04 billion, down 8% that analyst estimates missed, with lower interest income and asset values. Revenue for the asset management division was down 14% to $ 692 million, below the estimate of $ 757.8 million, as the bank closed down assets.

As with competing banks, trading results were strong with revenues up 30% year-on-year, and fixed income agencies generating $ 2.2 billion in revenues, half a billion dollars more than expected. Equity agencies also performed better, with revenues of $ 2.42 billion, nearly $ 200 million more than expected.

Investment banking revenues were down 1% to $ 1.14 billion, below the estimate of $ 1.26 billion, as higher debt issuance could not fully offset lower activity at IPOs and lower merger and acquisition demand.

But the results of the institutional securities division, which houses trading and consulting firms, were damaged by a loss of $ 610 million in the market for loans held for sale and a provision of $ 388 million for credit losses, possibly linked to the energy sector.

Under CEO of James Gorman, Morgan Stanley has highlighted the asset management division as a more stable company than its trading activities. But Morgan Stanley still has the largest stock trading on Wall Street, and rivals have reported large trading gains during a volatile first quarter.

“In the past two months, we’ve witnessed more market volatility, uncertainty and fear from the devastating COVID-19 than ever since the financial crisis,” Gorman said in the statement Thursday. “While it is too early to predict how this will unfold, Morgan Stanley has weathered the quarter well given the circumstances, and our results demonstrate the strength of our well-balanced business model.”

Analysts asked Gorman about the bank’s performance goals announced in January. The bank said it would achieve operating returns of 13% to 15% within two years and from 15% to 17% thereafter.

“We are in a wild period,” Gorman said in a conference call on Thursday. “We’re going to have a negative GDP of, I don’t know, 30%.”

They can still meet their two-year goals, but they need the work environment to normalize, and it would be “irresponsible to re-commit me to these goals in this call,” Gorman said.

Morgan Stanley is the last of the six largest US banks to report results. JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs and Citigroup all showed sharp declines in earnings due to the coronavirus pandemic.

This is what Wall Street expected:

Earnings: $ 1.14 per share, down 18% from a year earlier, according to Refinitiv

Sales: $ 9.73 billion, down 5.4% from a year earlier

Asset management: $ 4.28 billion, according to FactSet

Trade: stocks $ 2.23 billion, fixed income $ 1.71 billion

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