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Reuters
Morgan Stanley reported record first-quarter profit on Wednesday thanks to a surge in trading activity, much like other Wall Street banks, but executives warned results through the rest of the year may not be quite as strong.
Capital markets flourished during the first few months of 2018 as major economies expanded around the globe and U.S. interest rates rose, with bouts of volatility proving generally positive for trading.
As investors flocked to stock, bond, commodity and currency markets to adjust their portfolios, Morgan Stanley's broader institutional securities business reported its best results since 2007.
Trading revenue soared 26 percent to $4.4 billion, topping Morgan Stanley's chief rival, Goldman Sachs Group Inc, in dollar terms.
However, the early days of the second quarter have been defined more by geopolitical tensions, trade conflicts and debates about the direction of yields, Chief Financial Officer Jonathan Pruzan said in an interview. That bodes less well for trading revenue, especially since the first quarter is seasonally the strongest.
"If Morgan Stanley's strategy could be defined simply, it would be that we will do fine when the markets are tough and we would do well when the markets are good," Chief Executive Officer James Gorman said on a call with analysts.
"There are others who might do better when the markets are good. That's fine. What I care about is how we do when the markets are tough."
Morgan Stanley can generate at least $7.5 billion in revenue in a worst-case scenario, Gorman said, thanks to steps he has taken to grow more consistent income streams, like wealth management.
Overall, Morgan Stanley's quarterly profit rose 40 percent year-over-year to $2.6 billion, or $1.45 per share, easily topping analysts' average estimate of $1.25 per share, according to Thomson Reuters.
Total revenue rose 14 percent to $11.1 billion.
Analysts were generally positive on the results. In a report titled"Firing on All Cylinders," Oppenheimer analyst Chris Kotowski said Morgan Stanley had beat estimates in nearly all of its businesses.
Morgan Stanley shares rose 0.8 percent to $53.65 in morning trading.
Its report followed similarly sunny earnings from JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp and Goldman Sachs.
Unlike Morgan Stanley's Pruzan, Goldman's finance chief had said he believed the market trends that led to the blockbuster quarter were sustainable.
Gorman, 59, joined Morgan Stanley in 2006 as head of wealth management. He became CEO in 2010, as the bank was still reeling from the financial crisis.
His tenure has been defined by reducing risk, exiting problematic businesses and emphasizing steadier ones that can generate reliable revenue.
