Morgan Stanley boss talks down banking crisis as deal-making slump hits profits
Morgan Stanley’s chief executive James Gorman told analysts “we are not in a banking crisis” as he discussed the bank’s first quarter earnings.
Gorman dismissed concerns that the US banking sector could face a widespread banking crisis, saying conditions were very different to 2008 and that the largest US banks were now part of the solution.
“We are not in a banking crisis” Gorman said, but he admitted “we have had and might still have a crisis in some banks.”
Gorman praised the actions of regulators, arguing “strong regulation on both sides of the Atlantic has led to the cauterisation of the issue.”
Discussing the bank’s results, Gorman said the quarter was “very eventful for our industry but not so eventual for Morgan Stanley.”
Morgan Stanley’s profits slipped 19 per cent year-on-year to $3bn as the US banking giant suffered from the continued slump in dealmaking.
While this was ahead of market expectations, the bank’s shares fell more than four per cent in morning trading.
Investment banking revenue fell 24 per cent while fixed income – which has been a bright spot for many banks this quarter – slipped 12 per cent. Revenue in the overall division, which also includes equities, fell 11 per cent.
Although Gorman said capital markets were “very subdued” in the quarter, he said there’s a “growing M&A pipeline” which will boost the investment banking division. Chief financial officer Sharon Yeshaya also said the “backlog is building”.
The drop in investment banking revenue offset a strong performance from wealth management, which saw revenue rise 11 per cent to $6.6bn.
The strong performance in wealth management reflected higher net interest income against the previous year. The division also attracted net new assets of $110bn during the quarter.
Morgan Stanley has been attempting to diversify away from investment banking into wealth management over the past few years. Gorman said the performance showed the strategic investment continued to “bear fruit”.
He also signalled there would be more acquisitions to come. “There’s no doubt in my mind that there will be more acquisitions…in the wealth management space…but there’s nothing imminent,” he told analysts.
The bank set aside $234m, up from $57m in the same quarter last year. Yeshaya said this “primarily related to commercial real estate and deterioration in the macroeconomic outlook”.
Morgan Stanley’s results round off the earnings season for the US’ largest lenders. While fellow investment-banking focused Goldman Sachs saw its profits fall, the other largest banks continued to see the benefit of higher interest rates.
Citi, Wells Fargo, Bank of America and JP Morgan all beat expectations on the back of higher interest income. Smaller banks suffered however as depositors pulled millions following concerns over regional banks in the aftermath of SVB’s collapse.