Morgan Stanley struck the Wall Street bulls at the end of a previously positive banking earnings season, shedding profit forecasts as its trading business fell sharply to rivals during a volatile fourth quarter on the financial markets.
Shares of the investment bank fell 3.9 percent in New York trading on Thursday afternoon, returning the previous day's gains as they climbed in the wake of strong earnings reports from Goldman Sachs and Bank of America.
Lacking the consumer banking business that sealed off many of its rivals from a gloomy December on Wall Street, Morgan Stanley was carrying the full weight of ugly trade and a slow environment for corporate capital growth.
"It was not a satisfactory outcome," said James Gorman, Morgan Stanley's chief executive, regarding his bank's performance in the fixed income markets and "we do not expect it to be a standard operating procedure."
In a reversal of its sparkling third quarter, Morgan Stanley's trading business outperformed other Wall Street banks. Revenues from its large unit of stock trading were flat compared to the previous year, behind rivals JPMorgan, Citigroup and Bank of America. In fixed-income trading, Morgan struggled even more than its rivals, with revenue falling 30%.
"They performed well in the negotiations, and the deals hampered asset management as well," said Jeffrey Harte, a bank analyst at Sandler O & # 39; Neill. "Their value-at-risk has increased significantly in trade too – it seems they have risked their risk at the wrong time."
Mr. Gorman expressed optimism about the new year. "We do not believe that the fourth quarter is a new normal. . . the first quarter of the new year began on a path similar to the first quarter of 2018, "he said. The Bank's return targets for 2019 remained unchanged.
Although Morgan Stanley's fixed-income unit made the worst of Wall Street's major banks in the fourth quarter, dragged down by its debt and interest rate swings, it proved a brutal three-month period for the top five lenders, thanks per year – finalize the sale.
The big Wall Street banks are particularly vulnerable in their debt trading units during the market turmoil as they end up holding large bond portfolios as their customers leave the market. Stock trading units are much less susceptible to large losses, since they serve primarily as intermediaries, rather than stockholders.
Morgan Stanley also reported a drop in investment bank rates. A strong quarter for merger consulting, which followed similar robust results at other banks, was more than offset by bleak results in equity and debt underwriting, where revenues fell 22 percent and 28 percent, respectively.
Revenue from the bank's equity management division, generally a bulwark against volatility, was hampered by sharp losses in Morgan Stanley's employee retirement accounts, where deferred payment is made before it is acquired. Revenues fell 6%.
The impact of the losses on the retirement account did not affect the bank's profitability, as it was offset by corresponding decreases in the bank's compensation costs.
Officials paid the expenses and total operating expenses fell – paying $ 540 million from the previous year to $ 3.7 billion – but that was not enough to offset the drop in revenue.
Total revenue of $ 8.5 billion in the quarter was well below analysts' target of $ 9.3 billion. Earnings per share were $ 0.81, down 5% from the previous year.
Jonathan Pruzan, chief financial officer, said the bank is not seeing a significant impact of the US government's closure, but initial public offerings could be affected if the shutdown continues. "We need the Securities and Exchange Commission open to close these deals, and we have a strong channel," he said.