Morgan Stanley's earnings fall but still beat forecasts

NEW YORK, N.Y. – Morgan Stanley’s profits fell 14 per cent in the second quarter, the bank said Wednesday, reflecting difficulties investment banks have had due to market volatility before and after Britain’s vote last month to leave the European Union.

The investment bank reported a second-quarter profit of $1.42 billion before dividends to preferred shareholders, or 75 cents per share, down from $1.67 billion, or 79 cents a share, from the same period a year ago. That was well above the 59 cents per share analysts were looking for, according to FactSet.

Revenue fell 9 per cent to $8.91 billion from $9.74 billion.

“Our results this quarter reflect solid performance in an improved but still fragile environment,” CEO James Gorman said in a statement.

Like its competitor Goldman Sachs, which reported results Tuesday, Morgan Stanley had a mixed quarter on its trading desks, reflecting uncertainty in the markets surrounding the referendum in the U.K.

Revenue from stock sales and trading, typically Morgan Stanley’s strongest division, fell to $2.1 billion from $2.3 billion. Fixed income and commodities sales and trading revenue was flat at $1.3 billion, a contrast to the strong performance at Goldman Sachs and JPMorgan Chase.

Investment banking advisory revenue rose in the quarter due to a higher number of completed deals. Revenue from stock and fixed income underwriting fell.

Wealth management, a division of Morgan Stanley that Gorman has been pushing to grow to diversify the bank away from trading and investment banking, also came under pressure.

Earnings from wealth management fell to $859 million from $885 million. While the bank saw more money flow into its wealth management arm, asset management and trading fees both declined.

Morgan Stanley’s return on common equity, a closely watched metric, fell to 8.3 per cent from 9.1 per cent. Analysts typically are looking for investment banks to have a return on common equity above 10 per cent.

Morgan Stanley’s stock edged up 11 cents to $28.31.