Morgan Stanley has posted a record quarterly profit, bringing down the curtain on a generally bright first-quarter earnings season for the big US banks.
Stock trading revenues were up 30 per cent to $2.6 billion (€2.1 billion ), consistent with strong numbers across from other big banks. Fixed-income trading – historically a troubled business area, crashing almost 50 per cent during the fourth quarter to $808 million – was better too, rising by $200 million to $1.9 billion.
The wealth management business did well as well. Net revenues were up 14 per cent at $2.5 billion despite market jitters that left the S&P 500 with its first quarterly decline after nine straight periods of gains.
Analysts had expected net income of $2.2 billion for the period, up 16 per cent from a year ago, on revenue of $10.4 billion. Both numbers came in significantly stronger, at $2.7 billion and $11.1 billion respectively.
Earnings per share of $1.45 compared to consensus forecasts of $1.25. Return on equity came to 14.9 per cent for the quarter, on an annualised basis, well ahead of the bank’s target range of 10-13 per cent.
"We delivered very strong results this quarter, with record revenues and net income – and an ROE above our target range," said James Gorman, the bank's chairman and chief executive. "Each of our businesses performed well, with significant client engagement across our global franchise, and sales and trading a particular highlight in a more active environment."
Analysts were expecting good numbers from Morgan Stanley's equities business, the biggest on Wall Street by revenue, after the Cboe's VIX index, a measure of implied volatility in the S&P 500, consistently traded above its long-term average of 19 – a level it did not reach at all in 2017. Elsewhere on Wall Street revenues from stock-trading saw big year-on-year jumps: from 26 per cent at JPMorgan Chase to 38 per cent at Bank of America, Goldman Sachs and Citigroup.
When he took over in 2010 Mr Gorman set out to offset volatile revenues from trading with stickier, annuity-like revenues from wealth and investment management. That meant doubling down after the 2012 acquisition of Smith Barney, while cutting hundreds of traders and salespeople. With revenues from trading and wealth now more evenly split, the shares have responded, closing the gap on Goldman Sachs by market capitalisation and – at one point in January – eclipsing it.
Dec Mullarkey, a Boston-based managing director at Sun Life said that the bank is reaping the benefits of “aggressive” moves Mr Gorman made early on in his tenure. “They made a lot of hay and now they’re getting solid performance across most of their platforms.”
– Copyright The Financial Times Limited 2018