Morgan Stanley profit beats estimates on wealth business strength

MORGAN Stanley’s first-quarter profit beat expectations as rising revenue from its wealth management division offset declines in its investment banking and trading units.

Shares, however, fell more than 2 per cent in premarket trading.

Revenue from investment banking fell 24 per cent to US$1.25 billion, while the wealth management unit saw a 11 per cent jump, bringing in US$110 billion in net new assets.

Wall Street’s investment banks have suffered the most from a downturn in mergers and acquisitions as investors shunned risky bets against the backdrop of volatile markets and rapidly rising interest rates.

The turmoil has also brought initial public offerings to a virtual halt as startups put off market debuts until investor sentiment improves.

The downswing in investment banking activity, which forms the core of the bank’s business, dragged its total revenue down nearly 2 per cent to US$14.5 billion in the quarter.

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“The investments we have made in our Wealth Management business continue to bear fruit,” chief executive James Gorman said in a statement.

Results from Morgan Stanley round out a choppy reporting season for Wall Street’s biggest banks as the collapse of two mid-sized lenders in March sent shockwaves across the world and further fuelled recession worries.

The bank’s closest rival Goldman Sachs Group also reported a slump in its investment banking unit as dealmaking and bond trading slumped and it lost money on the sale of some assets in its consumer business.

Morgan Stanley set aside US$234 million in the quarter compared with US$57 million a year ago, bracing for a deterioration in commercial real estate and customers potentially falling behind on loan payments amid rising costs of borrowing and recession worries.

The bank earned US$1.70 per share, beating analysts’ average estimate of US$1.62 per share, according to Refinitiv data.

Profit applicable to the bank’s common shareholders for the three months ended Mar 31 fell to US$2.83 billion, or US$1.70 per diluted share. That compares to US$3.54 billion, or US$2.02 per diluted share, a year earlier.