Morgan Stanley Beats, Aided by Wealth Management
Strong gains in its global wealth management and securities units helped Morgan Stanley swing to a profit in the first quarter, the firm reported on Thursday, beating Wall Street's expectations.
The sixth largest U.S. bank reported that earnings excluding items came in at 61 cents per share, which reversed a six cent share loss in the year-earlier period. Including the impact of Morgan's debt-related credit spreads, income from continuing operations checked in at 50 cents per diluted share.
Revenue improved to $8.475 billion from $6.94 billion a year ago. Analysts had expected the company to report earnings excluding items of 57 cents a share on $8.35 billion in revenue, according to a consensus estimate from Thomson Reuters.
The results suggest that Morgan Stanley is making headway in regaining the ground it's lost to competitors on Wall Street, after being waylaid by the 2008 crisis. In recent years, the bank has struggled with lackluster results and subpar investor returns. Late last year, some investors called on Morgan Stanley to improve governance and reform its compensation practices.
The bank cited strong performance in its global wealth management group, where net revenue rose to $3.5 billion and pre-tax profit margins came in at 17 percent.
Still, the bank saw continued deterioration in fixed income and commodities trading — a factor that may have prompted traders to jettison its stock despite the return to profitability. Revenue from bonds, commodities, and currencies plunged by 42 percent for the first quarter when compared to a year ago.
In Thursday trading on the New York Stock Exchange, Morgan Stanley's shares plunged by four percent, to around $20.60. (Click here to get the latest quotes for Morgan Stanley.)
Client assets in the group were $1.8 trillion, with assets in fee-based accounts coming in at $621 billion. Compensation expenses for the quarter edged higher, to $2.1 billion, even as the number of Morgan Stanley's wealth management advisers dipped slightly.
"In global wealth management, our operating pre-tax profit was the highest in our history, and we look forward to completing the acquisition of the remaining 35 percent of our wealth management joint venture once we have obtained full regulatory approval," James P. Gorman, chairman and chief executive officer, said in a statement.
The bank jointly owns its wealth management unit with Citigroup, another bank that has struggled to right itself in the post-2008 era. Last month, the Wall Street Journal reported Morgan was close to a deal to purchase the remaining stake for about $4.7 billion.
"Looking forward, while the global environment continues to have moments of fragility, we believe the broad economic outlook for the next several years is stronger than in the recent past," he added.
In an interview with CNBC's "Squawk Box", Morgan's CFO Ruth Porat said the bank's results were a "solid" start to the year, although she noted that institutional flows weakened somewhat last month.
Still, Porat also said waning CEO confidence in the economic recovery was a barrier to merger activity — a traditional strength of Morgan Stanley's — as well as the outlook for profits in the second half of the year.
Institutional securities, excluding the impact of its credit spreads, were boosted by underwriting, equity sales and trading — helped in part by the surge in stock markets that recently drove major benchmarks to new historical highs. However, Morgan Stanley also saw lower volumes in its fixed income and commodities units.
Earnings season has been a mixed bag for large Wall Street banks. This week Bank of America earnings fell short of Wall Street expectations while Citigroup beat on both profit and revenue. Wells Fargo beat on earnings last week but revenue was light, and JPMorgan Chase topped profit forecasts though net revenue fell.