Morgan Stanley building is seen in New York July 16, 2018. Morgan Stanley’s wealth management unit fell 8% to $4.04 billion.Lucas Jackson/Reuters
Morgan Stanley chief executive officer James Gorman warned that the bank would take “longer to achieve” its medium-term financial targets due to the coronavirus crisis, after its first-quarter profit slumped by 30 per cent.
In January, just before the virus started spreading around the world, Gorman boosted the bank’s performance targets and set new goals for cost-cutting, returns on equity and wealth management profits over the next two years and beyond.
In the weeks that followed, the pandemic forced sweeping lockdowns, shuttered businesses, left millions jobless and raised fears of a severe recession, prompting Wall Street banks to set aside billions to cover for potential losses.
Morgan Stanley said the current economic crisis will push its targets out of its reach and a long-drawn-out crisis could adversely affect its business in the coming quarters.
“As long as the duration and scale of the pandemic and economic slowdown remain uncertain, I expect markets will continue to be fragile. The resulting stress on the global economy is real and will take time to recover,” Gorman said on a call.
The bank’s results capped a tumultuous quarter of earnings reports from big U.S. lenders, which reported sharp declines in profit and boosted their reserves in anticipation of a wave of loan defaults and non-payment of credit card bills.
Morgan Stanley reported a below-target return on tangible common equity (ROTCE) in the first quarter, and Gorman cautioned that the bank probably will not meet them in the next quarter.
“It would be irresponsible of me to recommit to those targets on this call. Those targets are not achievable in the second quarter, they weren’t achievable in the first quarter,” said Gorman, who recently recovered from the illness caused by the novel coronavirus.
Morgan Stanley differs from most of the other big six U.S. banks because it does not have large book of consumer loans and credit card business like JPMorgan Chase, or significant balance sheet investments like those of rival Goldman Sachs.
That business mix appeared to work in its favour, as it did not have to set aside massive loan loss provisions.
Its robust performance in trading mirrored a similar showing from bigger rivals Goldman Sachs and JPMorgan, both of which clocked double-digit growth in equities and bond trading.
Trading revenue at Morgan Stanley surged 30 per cent, boosted by wild swings in markets. This was led by a 29 per cent jump in bond trading and a 20 per cent rise in equities trading.
However, revenue at Morgan Stanley’s wealth management unit, which contributes roughly half to its total revenue, fell 8 per cent to $4.04 billion, as it bore the brunt of the ongoing turmoil in financial markets.
Advisory revenue fell 11 per cent as deal making took a beating in the quarter, with businesses bracing for a massive slowdown in the coming months.
Morgan Stanley’s $13-billion deal to buy discount brokerage E*Trade Financial Corp also coincided with the spread of the coronavirus, forcing management to justify the buyout to investors. The company said it was on track to close the deal in the fourth quarter.
Investment management revenue at Morgan Stanley fell 14 per cent to $692 million, hurt by valuation markdowns on its investment portfolio and lower interest on loans.
The bank said earnings attributable to common shareholders fell to $1.59 billion, or $1.01 per share, in the first quarter ended March 31. Analysts had $1.14 per share, according to IBES data from Refinitiv.
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