Investment banking revenue dropped 55%, hurting the bank’s performance.
Investment banking revenue was lower than expected, which hurt Morgan Stanley’s results for the second quarter, which were released Thursday.
Based on a poll of analysts by Refinitiv, here’s what the company said compared to what Wall Street was expecting:
Earnings per share: $1.39, compared to the expected $1.53
$13.13 billion in sales, instead of the expected $13.48 billion
The New York-based bank said in a release that their profit dropped by 29 percent, from $3.69 billion, or $2.02 per share, last year to $2.5 billion, or $1.39 per share.
From $14.8 billion, sales dropped 11 percent to $13.13 billion. This drop was caused by a sharp 55 percent drop in sales from investment banking.
The results confirm what some analysts were afraid would happen to Morgan Stanley, which runs one of Wall Street’s biggest equity capital markets operations.
The firm’s investment banking division made $1.07 billion in revenue in the second quarter. This was $400 million less than what analysts had predicted, which was $1.47 billion, but this estimate had been lowered in recent weeks.
The bank’s stock fell less than 1 percent before the market opened.
Wall Street banks are dealing with a sharp drop in IPOs, debt, and equity offerings this year. This is a big change from last year, when there was a boom in deals that drove results.
The change came about because a lot of financial assets went down in value, people were worried about a recession, and Russia invaded Ukraine.
“Overall, the company had a good quarter in a market that was more volatile than it has been in a while,” CEO James Gorman said in a press release.
He also said that good trading results “helped partly make up for less activity in investment banking.”
Equities trading brought in $2.96 billion, which was more than the estimate of $2.77 billion, and fixed-income trading brought in $2.5 billion, which was a lot more than the estimate of $1.98 billion.
The firm’s huge wealth management division brought in $5.74 billion, which was less than the $5.99 billion that was expected because the value of assets went down, which cut management fees.
Last year, investment management made $1.41 billion, which was 17 percent less than this year.
Last month, Ted Pick, who is co-president of Morgan Stanley, said that the markets would be dominated by worries about inflation and recession during a time of change, after central banks stopped making money easy to get for almost 15 years.
“The banking calendar has slowed down a little bit because people are trying to figure out if this paradigm shift will be clear soon or not,” Pick said.
Shares of the bank have fallen by 24 percent so far this year, which is worse than the 19 percent drop in the KBW Bank Index.
Thursday, JPMorgan also reported disappointing earnings for the second quarter. The biggest U.S. bank by assets, JPMorgan, increased its reserves for bad loans and stopped buying back its own stock because it thinks the economy will get worse.
Morgan Stanley, on the other hand, bought back $2.7 billion worth of its own stock in the last quarter, and the company’s board of directors has approved a new $20 billion programme.
Wells Fargo and Citigroup will post their results on Friday, and Bank of America and Goldman Sachs will do the same on Monday.