Morgan Stanley’s Profit Falls, Hurt by Lower Trading Revenue

Morgan Stanley said second-quarter profit fell 13% from a year ago, confirming that Wall Street-style businesses like investment banking and trading are still in the doldrums.

The bank on Tuesday posted a profit of $2.18 billion, or $1.24 a share. That beat the $1.15 a share expected by analysts, according to estimates compiled by FactSet.

Revenue increased 2% to about $13.5 billion, beating expectations of $13.02 billion.

Investment banking revenue, including fees from mergers and acquisitions, was about flat from a year ago at about $1.08 billion.

Higher interest rates and concerns about a possible recession are keeping many corporate executives from pursuing deals or taking their companies public. That slowdown, which started last year, has lasted longer than many bankers had expected. Investment-banking revenue was also down at JPMorgan and Citigroup, which reported earnings last week. 

Morgan Stanley’s trading revenue fell 22% from a year ago, following declines of 10% at JPMorgan and 13% at Citigroup. Adjusted trading revenue was up 10% at Bank of America, which reported earnings Tuesday and has built out its trading business over the past few years. 

Morgan Stanley cut roughly 3,000 employees during the second quarter, which followed a round of layoffs late last year.

“The quarter started with macroeconomic uncertainties and subdued client activity but ended with a more constructive tone,” Morgan Stanley’s CEO James Gorman said.

Bank of America posted higher profit and revenue after it earned more from lending as rates rose.

“We continue to see a healthy U.S. economy that is growing at a slower pace, with a resilient job market,” CEO Brian Moynihan

Morgan Stanley is usually protected in volatile spells by its business managing money for wealthy clients. Revenue rose 16% in the wealth-management business, and the unit accounted for nearly 50% of total company revenue in the quarter.

Morgan Stanley, which bought E*Trade in 2020, continued to attract retail-trading customers. Those customers numbered 8.1 million at the end of June, unchanged from the prior quarter but up from 7.8 million a year prior. 

But those customers are trading less often. The average daily number of retail trades the company handled was about 765,000, down from 880,000 a year ago.

Gorman, who spearheaded the bank’s overhaul into a wealth-management powerhouse, said in May that he will be stepping down as CEO within the next year, marking an end to his 13-year tenure running the bank. 

Executives who are viewed as the most likely to replace Gorman include Andy Saperstein, co-president and head of wealth management; Ted Pick, co-president and head of institutional securities and co-head of corporate strategy; and Dan Simkowitz, head of investment management and co-head of corporate strategy.

A continuing challenge at Morgan Stanley and other large investment banks is the prolonged slump in deal making activity. 

Globally, the total deal value of mergers and acquisitions fell about 39% during the first half of this year compared with the same period last year, according to Dealogic.

Total deal value for initial public offerings is down 32% from the first half of last year. It is also  lower than it was in the first half of 2021 and 2020.

Write to AnnaMaria Andriotis at [email protected] and Ben Eisen at [email protected]