Morgan Stanley Falls With Earnings Showing Dire Outlook (1)

Morgan Stanley shares slid as much as 3.5% in early Thursday trading after the bank expressed caution about the impact of the unfolding coronavirus pandemic along with its first-quarter results.

The bank noted that depressed economic activity will hurt future operating results, possibly “without the potential benefit of higher client trading activity experienced in the first quarter.” Morgan Stanley also flagged “notable” credit deterioration within institutional securities, with mark-to-market losses, net of economic hedges of $610 million on loans held for sale and a provision of $388 million for credit losses.

On the conference call, CEO James Gorman, who has recovered from a bout with Covid-19, said the quarter ended in “absolute crisis.” He refused to stick to earlier targets, and said any executive who would try to do so is living on another “planet.”

Read more: Morgan Stanley Delivers Trading Boon, Caution on It Lasting

The quarterly results were “somewhat discouraging,” Wolfe Research analyst Steven Chubak wrote in a note. But he said that the “cautious outlook commentary in the release is the area of greater concern.”

Atlantic Equities analyst John Heagerty wrote that it wasn’t immediately clear whether the bank’s view was “just a manifestation of the CEO’s caution or whether Morgan Stanley is actually seeing more negative trends than Goldman Sachs, who yesterday spoke positively about trading in the first half of April.”

Morgan Stanley was the last of the big banks to post earnings. On Wednesday, most declined after Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. reported earnings that included large provisions for the economic impact of the Covid-19 pandemic and accounting shifts known as CECL.

Banks across the board extended losses into a fourth day on Thursday, with the KBW bank index dropping 3.5% to the lowest intraday since April 6. Decliners included JPMorgan Chase & Co., down by as much as 3.5%, BofA, off by 4.3%, and Wells Fargo, with a 5.4% decline. The index has shed 41% since Feb. 20, when concern about the virus began accelerating, versus an 18% drop for the S&P 500.

Earlier, Morgan Stanley reported equities sales and trading revenue of $2.42 billion, topping expectations of $2.30 billion, while FICC sales and trading revenue and investment banking also beat. On the other hand, wealth management net revenue of $4.0 billion missed analysts’ estimate of $4.31 billion.

Results were “all in a mix of pluses and minuses, largely consistent with the impact of a deteriorating macro backdrop on a bank,” Credit Suisse analyst Susan Roth Katzke wrote. Downside to earnings-per-share was due to larger asset marks and loan loss reserve build, along with weaker banking and equities than Credit Suisse had forecast, she said, while fixed income was a “bright spot.”

“Morgan Stanley posted the least bad results of the major U.S. banks,” even as “top-line revenue growth was decidedly weaker than its key rivals,” Opimas CEO Octavio Marenzi wrote.

Overall results beat the competition, he said, because the bank didn’t “get hit as hard” in its investment and lending portfolio. “Perhaps this was skill, perhaps dumb luck,” he said. “The second quarter will show whether Morgan Stanley can continue to defy gravity.”

For more on Morgan Stanley First-Quarter Earnings, click here for our TOPLive blog.

(Rewrites throughout to update share trading and add analyst comments.)

To contact the reporter on this story:
Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story:
Tal Barak Harif at tbarak@bloomberg.net

Marc Perrier, Steven Fromm

© 2020 Bloomberg L.P. All rights reserved. Used with permission.