Tuesday 17 July 2018

Cost cutting helps Morgan Stanley to beat the Street

Morgan Stanley headquarters in New York
Morgan Stanley headquarters in New York

Hugh Son

Morgan Stanley joined the parade of Wall Street banks that beat profit estimates by cutting costs to counter a drop in revenue from fixed-income and equities trading.

First-quarter net income fell 53pc to $1.13bn, or 55 cents a share, the New York-based company said Monday in a statement.

Profit surpassed the 47-cent average estimate analysts.

While chief executive James Gorman has been shrinking the fixed-income trading division to emphasize the less-volatile wealth-management business, Morgan Stanley is still exposed to slumping markets that hurt results across Wall Street. The firm follows JPMorgan Chase, Bank of America and Citigroup in lowering expenses to compensate for falling revenue. Goldman Sachs, which reports results today, is embarking on its biggest cost-cutting push in years.

"If these markets were to continue as is, our goals will be extremely difficult to achieve, and we would therefore take additional appropriate actions," Mr Gorman said. The company is reviewing every product and business to "convince ourselves that we need our footprint as it's currently configured," he said.

Morgan Stanley dipped 0.3pc in New York. The stock has dropped 19pc this year, the worst performance in the 90-company Standard & Poor's 500 Financials Index.

Revenue fell 21pc to $7.79bn, compared with the $7.76bn consensus analyst forecast. Non-interest expenses slid 14pc to $6.05bn, below the $6.42bn estimate.

"The biggest surprise in the quarter was compensation," said Keith Horowitz, a Citigroup analyst, in a note to investors.

The bank generated $873m in first-quarter fixed- income revenue, 54pc less than a year earlier and the weakest start to a year since Gorman took over in 2010.

Equities-trading revenue declined 9.3pc to $2.06bn from $2.27bn. (Bloomberg)

Irish Independent

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