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Morgan Stanley posts record profit on trading boom

EconomyJul 16, 2020 11:15AM ET
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© Reuters. FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York

By Elizabeth Dilts Marshall and C Nivedita

(Reuters) - Morgan Stanley (NYSE:MS) posted a record quarterly profit on Thursday that blew past analysts' expectations as another of Wall Street's big investment banks gained from huge swings in financial markets due to the coronavirus crisis.

The bank wrapped up second-quarter results for the big U.S. lenders that shook out along expected lines. Trading powerhouses Morgan Stanley and Goldman Sachs (NYSE:GS) performed better than Main Street rivals JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C), which had to build massive reserves for loans that may go bust.

Morgan Stanley Chief Executive Officer James Gorman, like other Wall Street executives this week, cautioned that the bank's record-setting trading numbers would be hard to repeat in the coming quarters.

"Clearly, it will be challenging for the back half of 2020 to meet the record first half results .... That said, many parts of our business should continue to perform well," said Gorman.

A hallmark of Gorman's tenure as CEO has been the bank's decade-long expansion into wealth and asset management, businesses that diversified the bank's revenue streams and provide balance against the unpredictability of its trading business.

Gorman said the decision to keep the bank's consumer loan business small also helped this quarter. Credit cards and small business loans are expected to be badly hit by the COVID-19 pandemic, and rival bank Goldman Sachs had to set aside $1.6 billion for loans that could go bad.

In contrast, Morgan Stanley set aside just $239 million.

The bank's stock was up over 3% at $52.98 by mid-morning.

"Morgan Stanley's impressive second-quarter results strongly reflected its favorable business mix," said Donald Robertson, a senior vice president at Moody's (NYSE:MCO) Financial Institutions Group. "Its lack of traditional retail and commercial banking activities left it ... unscathed from the large loan-loss provisions."

For a graphic of banks' trading revenue, see https://tmsnrt.rs/3gYfW1I

TRADING, INVESTMENT BANKING SURGE

The bank's trading unit recorded a 68% jump in revenue, led by a nearly 168% surge in bond trading. Equities trading revenue rose 23%.

Investment banking was another bright spot, with revenue jumping 39% as companies looked to shore up their financial position to ride out the effects of COVID-19 pandemic.

Overall revenue jumped 31% to a record $13.41 billion in the quarter, clocking a rise in all its segments.

In the wealth management unit, where revenue rose 6% since last year, clients took advantage of both the markets and lower interest rates to borrow more. The unit generated about a third of the bank's revenue for the quarter.

Securities-based loans, or loans on the value of one's brokerage account, rose 17% year over year, while mortgages rose 12%.

The bank's earnings attributable to common shareholders rose 45% to $3.2 billion, or $1.96 per share. Analysts on average had expected a profit of $1.12 per share, according to IBES data from Refinitiv.

Morgan Stanley posts record profit on trading boom
 

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Comments (8)
eddie glass
eddie glass Jul 16, 2020 2:30PM ET
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nice to see that the fed taking measures to help the banks at the expense of tax payers and the value of the USD has helped make banks richer than ever
eddie glass
eddie glass Jul 16, 2020 2:30PM ET
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*emergency measures even
MP Sorensen
MP Sorensen Jul 16, 2020 2:30PM ET
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I totally agree. It cannot last
MP Sorensen
MP Sorensen Jul 16, 2020 2:28PM ET
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This is the end of the Financial system as it is. When the public realize tax and corona-parachutes just go in pockets of the weapon bearers of mass destruction (backing-products) I expect the finansial world to end in chaos. The working man cannot keep paying these voltures for long again. I am educated in finance but it makes me sick nowadays :(
eddie glass
eddie glass Jul 16, 2020 2:28PM ET
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countdown until they talk about all the loan defaults....
Park Lee
Park Lee Jul 16, 2020 1:49PM ET
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at the expense of whose losses?
Kaveh Sun
Kaveh Sun Jul 16, 2020 10:36AM ET
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Glass–Steagall ban banks from trading. Volcker rule does not, it mostly ban banks from trading high risk securities. The media make the pulic think that Volcker ban banks from trading. As ussual, writers add # n make the public confuse.
kristijan pavuna
kristijan pavuna Jul 16, 2020 9:53AM ET
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It's easy when you and your buddies dictate the market
Plopseven Schwartz
Plopseven Schwartz Jul 16, 2020 8:28AM ET
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Volcker Rule overturn by the FED means we’re heading to another 2008 MBS scenario. They just looooove financisl crises don’t they.
Kaveh Sun
Kaveh Sun Jul 16, 2020 8:28AM ET
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Volcker rule restrict banks from certain trading activities. That is about it. If congress were serious, congress reinstated the Glass–Steagall.
neang aee 냥에
neang aee 냥에 Jul 16, 2020 7:41AM ET
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What a Great Alchemy from tax to bonus for finance peoples!
James Hilton
James Hilton Jul 16, 2020 7:41AM ET
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Nothing magical or spurious about this. Just another day in wonderland..
 
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