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Jul 18, 2019

Morgan Stanley posts steepest trading slide on Wall Street

Morgan Stanley Equities Trading Revenue Drops 14% in 2Q

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Morgan Stanley (MS.N), the biggest stock-trading shop on Wall Street, is losing some of its lead.

The company posted a 14 per cent drop in equities-trading revenue, the steepest decline among major U.S. banks, as it cited lower client balances in its prime-brokerage business. While the firm had a surprise jump in wealth-management fees, the trading slump caused overall revenue to fall.

Trade disputes and other geopolitical risks have weighed on stock clients, who’ve largely stood on the sidelines. Morgan Stanley last year elevated Ted Pick, who once led equities, to oversee all its traders and investment bankers, making him a candidate to one day become chief executive officer. He enjoyed breakthrough results last year, but said he’s led the business with “high levels of paranoia” this year because “there are one or two competitors” who are “coming after you.”

Equities revenue slumped to US$2.13 billion in the second quarter, compared with the US$2.27 billion average estimate of analysts in a Bloomberg survey. That was still the highest total among banks, but comes after rival Goldman Sachs Group Inc. reported a surprise jump, booking US$2.01 billion of stock-trading revenue in the period.

“We’re No. 1 in the world, and we had a very strong quarter. Some of our competitors are coming from a weaker position from a year ago,” Chief Financial Officer Jon Pruzan said in an interview. “It looks like the wallet’s down coming off a strong first half last year, and we would expect to maintain our market share in this type of environment.”

Morgan Stanley shares, which gained 10 per cent this year through Wednesday, fell 0.4 per cent to US$43.60 at 8:12 a.m. in early New York trading.

Fixed-income trading also dropped more than rivals in the second quarter, slipping 18 per cent, compared with analysts’ estimates of a seven per cent decline. Investment banking had a drop across deals and underwriting for debt that was worse than expected, while equity underwriting surpassed estimates. Pruzan said the deals pipeline is “healthy” and the firm is seeing more activity in leveraged finance.

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JPMorgan Chase & Co., a major rival in the equities business, earlier this week posted a 12 per cent slump in that unit, but said separately that its unit that services hedge funds had balances reaching an all-time high. Prime brokerage has been a competitive arena for investment banks, and the industry faces major changes as Deutsche Bank AG exits the business. Pruzan said Morgan Stanley’s balances have climbed steadily since market turmoil in December caused clients to scale back.

“Our balances are up, but it’s more of a subdued up than sort of the animal spirits you would generally characterize in this type of environment,” Pruzan said. “There’s not a lot of conviction in that space right now.”

More on Morgan Stanley’s second-quarter results:

  • Wealth management posted a surprise jump in revenue, and generated a 28 per cent profit margin.
  • Earnings per share of US$1.23 beat analysts’ estimates of US$1.15.
  • Expenses across the firm fell to US$3.65 billion from US$3.9 billion a year earlier.