By Elizabeth Dilts Marshall and C Nivedita
(Reuters) – Morgan Stanley posted a record quarterly profit on Thursday that blew past analysts’ expectations, as another of Wall Street’s big investment banks gained from huge swings in financial markets due to the coronavirus crisis.
The bank wrapped up second-quarter results for the big U.S. lenders that shook out along expected lines – trading powerhouses Morgan Stanley and Goldman Sachs performed better than Main Street rivals JPMorgan Chase, Bank of America and Citigroup, which had to build massive reserves for loans that may go bust.
Most Wall Street executives, however, have warned that the trading boom will not last for long.
Morgan Stanley Chief Executive Officer James Gorman cautioned that the bank’s record-setting numbers would be hard to repeat in the coming quarters.
“Clearly, it will be challenging for the back half of 2020 to meet the record first half results …. That said, many parts of our business should continue to perform well,” said Gorman.
He attributed the success of the quarter to the bank’s decade-long plan that balances the stability of the wealth management business and a minimal exposure to consumer loans against the unpredictability of its trading business.
Morgan Stanley set aside $239 million to brace for potential credit losses, lower than the previous quarter, partly because the bank’s credit portfolio, which does not include a credit-card business or lending to small businesses – sectors badly hit by the COVID-19 pandemic.
“Morgan Stanley’s impressive second-quarter results strongly reflected its favorable business mix, with net revenue and net income increasing,” said Donald Robertson, a senior vice president at Moody’s Financial Institutions Group.
TRADING, INVESTMENT BANKING SURGE
The bank’s trading unit recorded a 68% jump in revenue, led by a nearly 168% surge in bond trading. Equities trading revenue rose 23%.
Investment banking was another bright spot, with revenue jumping 39% as companies looked to shore up their financial position to ride out the effects of COVID-19 pandemic.
Overall revenue jumped 31% to a record $13.41 billion in the quarter, clocking a rise in all its segments.
In the wealth management unit, where revenue rose 6% since last year, clients took advantage of both the markets and lower interest rates to borrow more. The unit generated about a third of the bank’s revenue for the quarter.
Securities-based loans, or loans on the value of one’s brokerage account, rose 17% year over year, while mortgages rose 12%.
The bank’s earnings attributable to common shareholders rose 45% to $3.2 billion, or $1.96 per share. Analysts on average had expected a profit of $1.12 per share, according to IBES data from Refinitiv.
(Reporting by C Nivedita and Elizabeth Dilts in New York; Writing by Anirban Sen; Editing by Saumyadeb Chakrabarty)