Wall Street bank Morgan Stanley reported a quarterly profit that fell far short of market expectations, capping a generally downbeat quarter for big US banks after investors fled the bond, currency and commodity markets. Morgan Stanley's profit slumped for the second straight quarter, as uncertainty about the timing of a US interest rate hike and concerns about China's cooling economy sent shudders through global markets.
The bank, whose shares fell as 6.3 percent to $31.81 in early trading on Monday, said its trading revenue fell 17.2 percent to $2.03 billion in the period, contributing to a 42.4 percent drop in profit attributable to shareholders. Morgan Stanley joins arch rival Goldman Sachs Group Inc as well as Citigroup Inc, Bank of America Corp and J.P. Morgan Chase & Co in reporting grim results from trading, a business that many of them are trying to become less reliant on. Among the big six US banks, only Wells Fargo & Co managed an increase in revenue, while Citi turned in the biggest rise in net profit - 51 percent - largely due to cost cuts.
"The volatility in global markets in the third-quarter led to a difficult environment, impacting in particular our fixed income business and our Asia merchant banking business," Chief Executive James Gorman said in a statement. Earnings applicable to common shareholders fell to $939 million, or 48 cents per share, from $1.63 billion, or 83 cents per share, a year earlier.
Adjusting for legal reserves and valuation of debt, the bank earned 42 cents per share. Analysts on average had expected earnings of 62 cents per share, according to Thomson Reuters I/B/E/S. Consolidated net revenue fell 12.8 percent to $7.77 billion in the three months ended September 30. Excluding accounting adjustments, net revenue was $7.33 billion, also missing the average analyst estimate of $8.54 billion.
Revenue in the bank's increasingly important wealth management business fell 3.5 percent to $3.64 billion, but accounted for 46.9 percent of revenue, compared with 42.4 percent in the same quarter last year. The pre-tax margin in the wealth business also expanded to 23 percent from 21 percent, within Gorman's target of 22 to 25 percent by the end of the year. Morgan Stanley has been focusing on wealth management since the financial crisis as focuses less on volatile businesses such as bond trading to free up capital.
Revenue from investment banking, a traditional strength for the bank, fell 15.3 percent to $1.31 billion in a strong M&A market. Morgan Stanley ranked second globally in mergers advisory volumes in the first nine months of the year, after Goldman, according to Thomson Reuters data. Morgan Stanley said it had spent 18.4 percent less on employee compensation in the quarter, the lowest since the second quarter of 2010. Weak trading revenues are likely to mean Wall Street bankers and traders will get smaller bonuses this year. Up to Friday's close, Morgan Stanley's shares had fallen 12.5 percent this year, underperforming the KBW banking index, which dropped 4.4 percent.
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