Profits fell at Morgan Stanley (MS) as the Wall Street giant struggled with a global slowdown in dealmaking and trading.
Its net income of $2.2 billion was down 13% from the same period a year ago, falling to its lowest level in more than three years. Its revenue of $13.5 billion was up 2% from a year ago.
“The firm delivered solid results in a challenging market environment,” said CEO James Gorman, who has announced plans to step down within the next year. The firm has yet to name his successor.
Trading revenues of $4.26 billion were slightly worse than analysts expected. Revenues for trading equities and fixed income fell 22% from a year ago and more than 19% from the previous quarter.
Investment banking revenues were flat when compared to a year ago and down from the first quarter.
Morgan Stanley’s sizable wealth management business helped offset some of those weaknesses. Revenues in that unit were up 16% from a year ago to $6.7 billion.
“The quarter started with macroeconomic uncertainties and subdued client activity but ended with a more constructive tone,” Gorman added. “We remain confident in our ability to grow in various market environments while maintaining a strong capital position.”
The optimism helped lift the stock price. Morgan Stanley closed up 6.4% Tuesday.
Slowdown on the Street
Morgan Stanley is the latest of several big banks to report a slowdown in investment banking and trading. Revenues from those businesses dropped during the last quarter at Citigroup (C) and JPMorgan Chase (JPM) but were up at Bank of America (BAC).
Those results do not bode well for rival Goldman Sachs (GS), which is scheduled to report its results tomorrow. Goldman also relies heavily on dealmaking and trading for revenue but has a much smaller wealth management business than Morgan Stanley.
Goldman is expected to show an investment banking revenue decline of 32% from a year ago and a trading decline of 17%, according to analyst estimates.
That could intensify the scrutiny of CEO David Solomon, who is wrestling with partner unrest and concerns about strategy as he tries to put a consumer-banking experiment behind the company.
Goldman is “indicating that the second quarter might be ‘throw the kitchen sink in’ with larger write-offs of some of these non-core businesses,” Ken Leon, CFRA research director of equity research, told Yahoo Finance Friday.
Thus there will be a focus on Solomon and “whether he can show the strategy they have is going to work,” Leon said. “It is going to be a tough issue” for the CEO.
Gerard Cassidy, a banking analyst with RBC Capital Markets, told Yahoo Finance Monday that if Solomon is unable to put together a plan showing how the bank will return to its profits of old, “his tenure there could be in trouble.”
‘Too early’
The global slowdown in dealmaking began last year, following a boom in 2021, causing firms across Wall Street to slash bonuses and staff. It continued in 2023. This year, worldwide investment banking revenues for the second quarter fell 52% from a year ago, according to Dealogic.
Citigroup, Morgan Stanley, Goldman, and other firms with big investment banking and trading units have made or announced cuts of roughly 12,000 jobs since the end of 2022.
Some observers are still predicting “green shoots” ahead, citing an uptick in announced M&A deals over the second quarter which could mean an improvement during the back half of 2023.
JPMorgan CFO Jeremy Barnum on Friday said investment banking was better than expected in June but cautioned analysts that it was “too early” to label it a trend.
“We will see,” he said. For overall capital markets, “July should be a good indicator for the remainder of the year.”
