Morgan Stanley Profit Soars, Closing Out a Banner Year -- 2nd Update
17 January 2020 - 3:35AM
Dow Jones News
By Liz Hoffman
Morgan Stanley on Thursday posted record annual revenue and
profit and set new financial targets higher.
The firm capped off a mixed week for big U.S. banks, which
reported mostly strong fourth-quarter earnings during a period
marked by a Federal Reserve interest-rate cut and fierce global
tensions. Giants JPMorgan Chase & Co. and Citigroup Inc. sailed
through, while Goldman Sachs Group Inc. and Wells Fargo & Co.
both took big legal charges that dragged down profits.
Morgan Stanley's fourth-quarter earnings of $2.2 billion, or
$1.30 a share, on $10.9 billion in revenue topped expectations of
analysts polled by FactSet. For the full year, it posted $9 billion
in profit on a record $41.4 billion in revenue.
Shares rose as much as 7.5% Thursday morning, on pace for their
best day since the day after the 2016 election.
Contributions came from all four of its major businesses --
investment banking, trading, wealth management and asset management
-- and lower taxes. Costs rose, in part because of $124 million in
severance paid to thousands of employees let go last month, and a
private-equity investment in Asia delivered a one-time gain.
Morgan Stanley's return on tangible equity, a measure of
profitability, was 12.9% for the year, excluding one-time tax
benefits. On Thursday, Chief Executive James Gorman set a new goal
of 13% to 15% by 2021 and as high as 17% in the future, a level
currently achieved only by JPMorgan among major U.S. banks.
He also set new targets for firmwide expenses and profit in
Morgan Stanley's giant retail brokerage. Now in his 10th year, Mr.
Gorman -- a no-nonsense Aussie who pledged $1 million last week to
aid in wildfire relief there -- is repeating a cycle that has
worked well for him: Set modest financial targets, hit them, then
inch forward the goal posts.
For years, Mr. Gorman has sounded impatient with bank analysts
who pestered him for new targets. On Thursday, he compared them to
"kids in the backseat of the car, asking 'when are we going to get
there?' Well, we kind of got there," he said. "There's no
compelling reason, with normal economic growth and expense
discipline...why these returns shouldn't be achievable."
He has lately sounded acquisitive, eager to use the goodwill he
has accumulated with investors and regulators to strike a deal. He
tested the waters in Washington last year by acquiring Solium, a
startup that manages stock for employees. Helping his cause now:
Morgan Stanley shares are up 25% since Sept. 30, which makes them a
better currency.
A likely area of expansion is in asset management, where Morgan
Stanley is smaller and nichier than peers. With $550 billion in
assets, it is undersized in fixed-income offerings and has sat out
the passive exchange-traded fund wave entirely -- consistent with
Mr. Gorman's broader view in money management that people pay for
expertise, not automation.
That view is being tested, as robo advisers court younger
investors and funds that simply mirror the market are now bigger
than those trying actively to beat it. Wealth managers such as
Morgan Stanley and Merrill Lynch are also likely to face new
competition as bulked-up discount brokerages try to replace trading
commissions, which have fallen to near zero, with advisory
fees.
Mr. Gorman is betting his firm's sheer size -- retail client
assets rose $135 billion to $2.7 trillion in the fourth quarter --
and belated rollout of a digital platform will sustain it. The
wealth division is integrating Solium, which manages the share
compensation for 1 million employees at thousands of companies,
though so far has converted just 5,000 of them into
wealth-management clients.
Morgan Stanley's investment banking fees rose 11%, its best
fourth quarter in a decade. The firm said a surge in initial public
offerings in Asia helped offset a decline in merger fees.
Trading revenue rose 28%, compared with gains of 55% at JPMorgan
and 33% at Goldman Sachs. The gains at all three firms look
unusually large because the year-ago period, in late 2018, was a
particularly bad one for bank trading desks. "We didn't see the
typical late-in-the-year slowdown in the markets this year," Chief
Financial Officer Jonathan Pruzan said in an interview.
Its asset-management division had a record quarter, helped by a
six-year-old private-equity investment in Asia that delivered a big
one-time gain. Quarterly profit doubled from a year ago, to $985
million, and the launch of new credit products helped bring in
fresh money.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
January 16, 2020 11:20 ET (16:20 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From Apr 2024 to May 2024
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From May 2023 to May 2024