Morgan Stanley Swings to Profit in 4Q, Beating Expectations
NEW YORK – Morgan Stanley swung back to a profit in the fourth quarter as the bank moved on from large legal settlements, its wealth management division improved and investment bank advisory activity picked up. The bank also announced a major reduction in its fixed income and commodities trading business, as the bank continues to move away from riskier businesses.
The New York-based investment bank said Tuesday it had a profit of $908 million in the three month period ending in December, or 39 cents per share. That’s compared to a loss of $1.6 billion, or $1.37 per share. Morgan Stanley had $3.1 billion in legal expenses in 2014, when the bank settled with state and federal regulators over its role in the housing bubble and subsequent financial crisis.
Removing an adjustment tied to the value of Morgan Stanley’s debt, the bank earned $986 million, or 43 cents per share. Analysts were looking for Morgan Stanley to earn 33 cents per share, according to FactSet.
Morgan Stanley’s institutional securities division, which includes the bank’s trading desk and investment banking businesses, had a mixed quarter due to the difficult trading environment last quarter. While equity sales and trading revenues rose to $1.8 billion from $1.6 billion a year earlier, bond trading and commodities sales and trading fell to $550 million from $599 million in 2014. Morgan Stanley’s investment bank advisory revenue was $516 million in the quarter compared with $488 million a year earlier.
Morgan Stanley said it will continue to unwind its commodity and fixed income trading businesses, which have been a major drag on the company’s results in recent years. The company plans to cut 25 percent of its workforce and stop trading products that the bank cannot build a team to specialize in. Morgan Stanley CEO James Gorman, in a call with investors, said the restructured business will be much more focused on the U.S.
The company also announced a major expense reduction program, called Project Streamline, designed to simply the legal structure of Morgan Stanley’s business and move large portions of its back office infrastructure to lower cost parts of the world.
The goal is to get Morgan Stanley’s return on equity, the firm’s measure of profitability, to between 9 percent and 11 percent from its current level of 7 percent.
The bank’s wealth management business, which includes what used to be known as Smith Barney, had a pre-tax profit of $768 million compared with $736 million a year earlier. Under CEO James Gorman, Morgan Stanley has been trying to focus more on wealth management in an effort to make Morgan Stanley less exposed to the wild swings of the financial markets.
Morgan Stanley’s revenue was $7.74 billion compared with $7.76 billion the year before.
Morgan Stanley rose 29 cents, or 1.1 percent, to close at $26.26.