Morgan Stanley had a rough first quarter, but still managed to beat analysts’ expectations. The company reported that its quarterly profit fell by more than half when compared to the same quarter a year ago. Earnings applicable to common shareholders fell 54.4 percent to $1.06 billion, or 55 cents per share, in the period, from $2.31 billion, or $1.18 per share, a year earlier. While the first quarter of last year was Morgan Stanley’s most profitable quarter since the financial crisis, this quarter was the weakest start to a year since 2010.
Sharply declining profits underscore Morgan Stanley’s exposure to shifting winds in global financial markets. Corporate mergers have slowed markedly from their record setting pace in 2015. The bank’s once dominant presence in many fixed income markets such as securitization and interest rate trading have also been providing diminished returns. The bank’s return on average common equity was 6.2 percent in the quarter ended March 31, well short of its target of 10 percent.
All of the big U.S. banks that have released first-quarter results have reported lower revenue from investment banking and trading. According to Thomson Reuters data, investment banking fees fell 29 percent industrywide in the period, making this the worst first-quarter for investment banking since 2009. At Morgan Stanley, investment banking revenue fell 18.4 percent to $1.11 billion.
Volatile global equity markets have also been hurting the results of the world’s biggest banks. Morgan Stanley reported that its equities trading revenue fell 9.3 percent, dropping to $2.06 billion for the first quarter. The company has been shifting its focus away from more volatile areas such as bond trading and towards more stable businesses such as wealth management. Morgan Stanley said that revenue from wealth management fell 4.3 percent to $3.67 billion during the quarter.
The company still managed to beat the expectations of analysts on earnings despite the unit declines in revenue. This was mainly due to the cost cutting measures undertaken by the company to offset the revenue reductions. The company says that it has cut the cost of compensation and benefits by 18.6 percent so far. Morgan Stanley’s stock fell about 21 percent in the quarter, the biggest decline of any big U.S. bank. Morgan Stanley’s stock had fallen about 19 percent this year.