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By Elizabeth Dilts and Matt Scuffham
(Reuters) – Morgan Stanley (N 🙂 Thursday announced a decline in its quarterly earnings, penalized by the decline in activity in the markets related to global trade tensions and forecasts for interest rate cuts in the United States.
It is the last major US bank to report earnings during a quarter, which revealed weaknesses in investment banking and trading activities on Wall Street. But Morgan Stanley's executives downplayed the impact that toll rate cuts could have on profitability and highlighted the growth of the bank's wealth management unit.
The wealth management business, which accounts for 44% of Morgan Stanley's revenue, grew 1.9% to $ 4.40 billion from the previous year. The unit benefited from both rising stock prices and an increase in loans to customers. This more than offset the effects of falling interest rates.
The bank reported a pre-tax profit margin of 28.2% for the company, just above the upper limit of its target of 26% to 28%. CEO James Gorman put a huge gamble on the wealth manager almost ten years ago as a stable source of revenue.
Lower interest rates can reduce a bank's net interest income or the difference between what it pays for deposits and earns loans. However, Morgan Stanley officials said it expects third quarter net interest income to remain unchanged from 2018, at about $ 1.1 billion.
"What motivates the numbers is not just the net interest income," Gorman said over a phone call with badysts. "We have other businesses here and some of them work very well."
Nevertheless, Morgan Stanley's sales and trading revenues fell 12% in the second quarter as bond and equity trades declined. In comparison, main rival Goldman Sachs Group Inc. (N 🙂 announced Tuesday a decline in revenue from bond trading but an increase in trading of shares.
Concerns over up to three rate cuts this year weighed on bank profits throughout the week and pushed competing JPMorgan Chase & Co (N 🙂 to reduce its interest margin. net projected for the year.
Morgan Stanley does not report this, but Chief Financial Officer Jonathan Pruzan said interest rate cuts would reduce margins in the wealth management business. What that would do to the rest of the bank's business, he said, is less clear.
"What this does for our fixed income businesses and our actions is actually a function of how people interpret the reduction," Pruzan said. "If it improves the world view that we are going to expand economic expansion and that people want to put pressure on the stock markets, it could … help."
Net sales and share trading decreased by 14% in the second quarter compared to the previous year.
Income from investment banking, which includes advisory and business support services to raise funds, decreased by 13%, bringing the bank's total revenue to 10, $ 2 billion.
The bank said earnings attributable to Morgan Stanley fell to $ 2.20 billion, or $ 1.23 a share, in the second quarter ended June 30, from $ 2.44 billion or $ 1.30 a share. action a year ago.
Non-interest expenses decreased 2% to $ 7.34 billion, due to lower compensation costs.
The bank beat badysts' expectations of a profit of $ 1.14 per share. His stock rose 0.4% to $ 43.95.
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