October 2, 2022

DealBook: Morgan Stanley Posts Loss That Hints at Recovery

James P. Gorman, Morgan Stanley’s chief executive.Tomohiro Ohsumi/Bloomberg NewsJames P. Gorman, Morgan Stanley’s chief executive.

7:59 p.m. | Updated

At Morgan Stanley, even a loss can be a win.

Although the financial firm reported a second-quarter loss of $558 million on Thursday, three crucial divisions posted significant gains, a promising sign that the turnaround plan Morgan Stanley embarked on after the financial crisis was taking hold.

In its institutional securities business, which houses trading and banking, revenue rose almost 15 percent, to $5.19 billion. The division that houses global wealth management posted net revenue of $3.5 billion this quarter, compared with $3.1 billion a year ago, after letting go of poorly performing brokers and cutting costs. The firm’s asset management division’s revenue jumped $235 million, to $645 million.

But the gains failed to put the firm in the black for the quarter, largely because it was still paying for the decisions it made during the financial crisis to keep the firm alive.

In April, Morgan Stanley renegotiated its deal with the Japanese bank Mitsubishi UFJ Financial Group, which had provided it with a $9 billion cash infusion during the darkest hours of the financial crisis. This move, which converted Mitsubishi UFJ’s preferred stock into common stock, was seen as positive, but it came at a price, forcing the firm to take a one-time $1.7 billion charge.

The bank’s loss of 38 cents a share in this most recent quarter was hailed by analysts, who had expected the bank to lose 61 cents a share. The firm’s stock surged on the news, rising 11.4 percent, or $2.48, to close at $24.20. Before Thursday, the shares were down about 20 percent for the year.

Morgan Stanley reported total revenue of $9.3 billion in the second quarter, up 17 percent from a year ago. That gave the bank an important symbolic victory: it was the first time since 2008 that its quarterly revenue exceeded that of its rival Goldman Sachs. Earlier this week, Goldman reported a disappointing $7.3 billion in net revenue, its lowest figure since the financial crisis.

While Morgan Stanley’s results were encouraging, the bank was still “a work in progress,” said Michael Wong, an analyst with the financial research company Morningstar. “It’s too early for James Gorman to declare victory,” he said, referring to Morgan Stanley’s chief executive.

Morgan Stanley’s traders produced some stumbles, such as an interest-rate trade in June that reportedly lost the firm tens of millions of dollars. But gains from other trades offset those losses, and the firm’s overall trading revenue climbed 4 percent over year-ago levels, to $3.5 billion.

Morgan Stanley’s investment banking team, traditionally a strong suit, also improved, and was in on some of the quarter’s biggest deals, including the public offerings of LinkedIn, Groupon and Zynga. These deals helped push investment banking revenue to $1.5 billion, from $885 million a year ago. Underwriting revenue increased 57 percent in the period, to $940 million. Revenue from Morgan Stanley’s advisory division also improved, jumping 85 percent, to $533 million. That unit represented BJ’s Wholesale in its deal to sell itself to a group of private equity firms for $2.8 billion. It also worked with Capital One Financial, which bought ING’s American online banking group for $9 billion in June.

One of Mr. Gorman’s top priorities since becoming chief executive in January 2010 has been stabilizing the bank by beefing up its global wealth management and asset management groups, safer groups that fluctuate less with the ups and downs of the stock market. In January, he appointed Gregory J. Fleming to lead Morgan Stanley Smith Barney, the firm’s wealth management arm.

The bank also took steps this year to improve its asset management division, which is also run by Mr. Fleming, and which has historically been a sore spot for the firm. The division’s growth primarily stemmed from gains in the firm’s real estate investments and improvements to its core asset management business.

“This wasn’t about a bunch of trading gains,” said Ruth Porat, the firm’s chief financial officer, in an interview after Thursday’s earnings release. “We’ve been very focused on building up the client side and delivering content with a point of view.”

In Thursday’s conference call, analysts asked Mr. Gorman about elements of his long-term plan, including the firm’s capital reserves and the continuing integration of its Morgan Stanley Smith Barney brokerage division, which was formed in a joint venture with Citigroup in 2009.

“These are unquestionably challenging markets, but our focus is and must be on methodical and resolute forward progress with an ever-increasing eye on those things which we do control,” Mr. Gorman said.

Article source: http://feeds.nytimes.com/click.phdo?i=d763727b88c28db3fad7bdb7ad618c90

Speak Your Mind