Morgan Stanley misses analysts’ profit expectations on worse-than-expected investment banking

James Gorman, chairman and chief executive officer of Morgan Stanley, speaks during a Bloomberg Television interview in Beijing, China, on Thursday, May 30, 2019.

Analysts had expected Morgan Stanley to report better than expected second quarter profit and revenue.

The numbers are listed here.

• Earnings of $1.39 per share vs $1.53 of estimate of analysts surveyed by Refinitiv
• Revenue of $13.13 billion vs $13.48 billion estimate

The New York-based bank said in a release that profit dropped 29% from a year earlier. The steep decline in investment banking revenue led to the decrease in revenue.

Morgan Stanley runs one of the largest equity capital markets operations on Wall Street. In the second quarter, the firm's investment banking division produced $1.07 billion in revenue, $400 million less than analysts had estimated.

The bank's shares were little changed in premarket trading.

The collapse in IPOs and debt issuance this year is a reversal of the deals boom that drove results last year. The change was caused by a decline in financial assets and pessimism over the possibility of a recession.

The CEO said that the firm delivered a solid quarter in what was a more volatile market environment. Good trading results helped partially counter weaker investment banking activity, he said.

Fixed-income trading revenue of $2.5 billion exceeded the estimate, while equity trading revenue of $2.96 billion was above the estimate.

Ted Pick, co-president of Morgan Stanley, said last month that markets would be dominated by concern over inflation and recession in a period of transition after 15 years of easy money policies by central banks.

Pick said that people are trying to figure out whether or not we will have this paradigm shift clarified sooner or later.

Some of Morgan Stanley's operations did better than others. Bond traders are expected to post strong results due to the fluctuations in interest rates.

The bank's wealth management and investment management divisions are responsible for half of the firm's revenue and are expected to hold up better than investment banking.

The decline of the bank's shares is worse than the decline of the index.

Wells Fargo, Citigroup and Bank of America are all expected to report results on Friday.

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