Morgan Stanley pins hopes on wealth management business

Morgan Stanley is revamping its business to target wealth management as an answer to a slump in revenues from trading and investment banking, but questions remain about the bank’s ability to turn its business round after its 2Q earnings missed their target.

Second quarter net income was $563m, down from $1.22bn year on year, the bank said.

Hopes had been raised after Morgan Stanley delivered good first quarter results, but since then net revenues dropped 23% to $7bn, due to lower trading volumes, too few large capital market deals, Moody’s downgrade of its debt and increasing burden of legislation.

Pre-tax income from the bank’s institutional securities division slumped 65% to $508m, from $1.49bn. Advisory revenue from deals halved to $263m. Net revenue in fixed income and commodities fell to $770m, down from $1.9bn a year ago.

Moody’s two-notch downgrade would cost Morgan Stanley an extra $6.3bn worth of collateral to its derivatives parties and cost the bank’s bond trading division about $225m, the bank said.

Shares in Morgan Stanley closed down 5.3 per cent at $13.25.

Morgan Stanley is now under pressure to transform its business towards less capital intensive areas.

James Gorman, chief executive, said the bank is undergoing “a pretty significant transformation” thanks to a cost-cutting programme, including 4,000 jobs by year end, and a reweighting of the bank towards the expansion of its wealth management business Morgan Stanley Smith Barney, a joint venture with Citigroup.


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