April 19 (Reuters) – Morgan Stanley’s first-quarter profit beat expectations as rising revenue at its wealth management unit offset declines in its investment banking and trading units.
But shares fell more than 3 percent to $86.81 in premarket trading Wednesday as investment banking revenue fell 24 percent to $1.25 billion and the bank set aside $234 million in the quarter to cover bad loans.
Provisions rose from $57 million a year ago as Morgan Stanley braces for a deterioration in commercial real estate and clients potentially falling behind on loan payments amid rising borrowing costs and recession worries.
Revenue at the wealth management unit jumped 11 percent, bringing in $110 billion in net new assets, of which only about $20 billion came from regional banks in response to the banking crisis in March.
“During challenging periods in the broader economic environment, we continue to be a preferred destination for our clients and their assets,” Chief Financial Officer Sharon Yeshaya said in an interview with Reuters.
A decline in investment banking activity for Morgan Stanley, which is the core of the bank’s business, reduced total revenue by nearly 2% to $14.5 billion in the quarter.
Wall Street investment banks were hit hardest by the slump in mergers and acquisitions as investors shied away from risky bets amid volatile markets and rapidly rising interest rates.
The turmoil also brought initial public offerings to a virtual halt as startups delayed market debuts until investor sentiment improved.
Global mergers and acquisitions shrank to their lowest level in more than a decade in the first quarter of 2023, with volumes shrinking 48% to $575.1 billion as of March 30 from a year earlier, data showed of Dealogic.
“The investments we’ve made in our wealth management business continue to bear fruit,” CEO James Gorman said in a statement.
Meanwhile, equity trading revenue fell 14%, while fixed income trading fell 12%.
The bank’s closest rival Goldman Sachs Group Inc ( GS.N ) also reported a decline in its investment banking as deals and bond trading slumped and it lost money on the sale of some assets in its consumer business.
Meanwhile, banking giants JPMorgan Chase & Co ( JPM.N ), Bank of America Corp ( BAC.N ) and Citigroup Inc ( CN ) reaped windfall gains from higher interest payments while setting aside billions of dollars to prepare for a worsening economy.
COMMERCIAL PROPERTIES, CONCERN
Some of the biggest US banks also pointed to commercial office real estate last week as an area of growing concern, with property values falling and more borrowers defaulting on loans amid rising interest rates and a slowing economy.
Morgan Stanley’s results capped a volatile reporting season for Wall Street’s biggest banks, as the collapse of two mid-sized lenders in March sent shockwaves around the world and further fueled recession worries.
While investment banks such as Morgan Stanley and Goldman remain relatively insulated from broader concerns about the spread of the crisis, the resulting uncertainty has again hurt deal-making prospects, dimming hopes for a near-term recovery.
The bank earned $1.70 per share, beating analysts’ average estimate of $1.62 per share, according to data from Refinitiv.
Profit attributable to the bank’s common shareholders for the three months ended March 31 fell 20% to $2.8 billion.
Reporting by Manya Saini and Niket Nishant in Bengaluru and Tatiana Bautzer in New York; Editing by Arun Koyyur
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