Morgan Stanley profits drop almost a fifth in first quarter

Morgan Stanley’s profits fell 19 per cent in the first quarter, as its booming wealth management division failed to make up for a lacklustre investment banking performance and its customers withdrew $10 billion (€9.13 billion) in deposits.

The bank’s wealth management division, which has been central to chief executive James Gorman’s success in boosting Morgan Stanley’s stock price, made $6.6 billion in revenue in the first quarter, a gain of 11 per cent from the same period last year and ahead of analysts’ expectations.

The division also pulled in $100 billion in net new assets during the quarter.

Morgan Stanley said on Wednesday that net income applicable to shareholders totalled $2.98 billion, or $1.70 per share in the first quarter, down from $3.7 billion, or $2.02 per share, in the same period last year.

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Analysts had forecast quarterly net income of $2.92 billion, or $1.63 per share.

Profits were hit by the bank quadrupling provisions for potential credit losses to $234 million, up from $57 million a year ago, which it said was “primarily related to commercial real estate and deterioration in the macroeconomic outlook”.

Net revenues for the quarter were $14.5 billion, down 2 per cent from $14.8 billion a year earlier, but ahead of analysts’ expectations of $14.1 billion.

Morgan Stanley said deposits, which have been a major focus for investors following the collapse of Silicon Valley Bank in March, fell 3 per cent to $340.9 billion from $350.6 billion last quarter. Many of Morgan Stanley’s deposits are from wealthier clients who tend to be less sticky and more likely to pull their funds in search of a better rate.

“The events of March, which shouldn’t surprise you, did create an environment where some of that cash that we would have seen in deposits moved into cash-like equivalents, so money market [funds], Treasuries,” Morgan Stanley chief financial officer Sharon Yeshaya said. “The money is largely staying within the four walls of Morgan Stanley as far as we can see it and that’s evidenced by our client assets.”

Gorman said in a statement that Morgan Stanley had “delivered strong results” in “a very unusual environment”.

Morgan Stanley shares slid around 2.8 per cent per cent in pre-market trading in New York.

Revenue from fixed income trading, which in the past 12 months has benefited from central banks’ aggressive rate rises and market volatility around the war in Ukraine, was down 12 per cent at $2.6 billion, beating analysts’ estimates for $2.4 billion but still lagging behind rivals.

By comparison, fixed income trading revenues at JPMorgan were flat, up 4 per cent at Citi and up 29 per cent at Bank of America. Goldman Sachs on Tuesday reported that fixed income trading revenues were down around 17 per cent.

Investment banking had another challenging quarter, with revenues falling 24 per cent to $1.2 billion, slightly ahead of analysts’ estimates of $1.1 billion and in line with similar drops at the other large Wall Street banks. – Copyright The Financial Times Limited 2023