James Gorman, the chief executive of Morgan Stanley, has warned that investment banking revenues could not recover before next year. The Wall Street group’s profits dropped by almost a fifth during the first quarter.
Morgan Stanley, as well as its competitors, have seen a slowdown in their investment banking activities due to the financial turmoil caused by the collapse of US regional banks and Credit Suisse Europe.
Gorman said to analysts on Wednesday, that debt and equity underwriting as well as mergers and acquisitions “remains very subdued”, but that these revenues will return at some point.
“We’re already seeing a growing M&A pipe and some springlike signs of new issue emerging.” Gorman told the bank’s earnings call that it is largely a story for 2023 or 2024.
The investment banking downturn has slowed the growth of the wealth management division.
Morgan Stanley closed at New York with a gain of about 0.7%.The first quarter net income for shareholders was $2.98bn, a 19% decrease from the same period in 2013. Bloomberg data shows that analysts had predicted quarterly net income at $2.92bn.
Morgan Stanley’s Investment Banking revenues dropped 24 percent to $1.2 billion, slightly above analysts’ expectations of $1.1bn. This is in line with other Wall Street banks that have also seen similar declines.
Fixed income trading revenue, which has in the last 12 months benefited from aggressive interest rate increases by central banks and the market volatility surrounding the war in Ukraine was down 12 percent at $2.6 billion.
It was a better result than analysts had expected ($2.4bn), but it still lags behind JPMorgan, Citigroup, and Bank of America whose revenues either remained flat or increased. Goldman Sachs reported Fixed Income Trading revenues down 17 per cent on Tuesday.The bank’s wealth management division made $6.6bn in revenue in the first quarter, a gain of 11 per cent from the same period last year and ahead of analysts’ expectations. The division also pulled in $110bn in net new assets during the quarter.
Gorman, who has been growing Morgan Stanley’s Money Management operations in recent years with deals for Eaton Vance and ETrade, told analysts Wednesday that “we will do more acquisitions”.
There is absolutely no doubt. It will be in wealth and asset-management space, and we keep a constant list of who is attractive and would be a great fit,” he added before adding that “nothing was imminent”.
Morgan Stanley reported that deposits, which were a focus of investors after the failure of Silicon Valley Bank last March, dropped 3 percent to $340.9bn from $350.6bn in the previous quarter. Morgan Stanley receives a large number of deposits from wealthy clients, who are less likely to stay with their money and more likely pull it out to find a better rate.
Sharon Yeshaya, chief financial officer at Morgan Stanley, said that SVB’s collapse prompted a move away from deposits into products like money market funds and US Treasuries. However many of these assets remained with Morgan Stanley.
The bank’s provision for possible credit losses quadrupled to $234mn from $57mn one year earlier, primarily due to the commercial real estate market and the deterioration of the macroeconomic outlook.