U.S. investment bank, Morgan Stanley’ fourth-quarter profit fell on a provision related to the new U.S. tax law, but adjusted profit aided by the robust outcome in wealth management helped to offset a drop in trading revenue.
Morgan Stanley’s earnings fell 59 percent in the fourth quarter, the company said Thursday, as the investment bank had to book $990 million in charges related to the new tax law.
Morgan Stanley earned $686 million, or 29 cents a share, down from $1.67 billion, or 81 cents a share, from a year earlier. Excluding the tax charges, the earnings rose to 84 cents a share, beating analysts’ forecasts, from 74 cents.
Like other banks, Morgan Stanley had to write down the value of its deferred tax assets, which are effectively tax credits the bank stockpiled after the financial crisis. The lower corporate tax rates under the new law lowered the value of those assets.
Morgan Stanley had a strong 2017 and it continued into the fourth quarter. The firm had net revenue in the quarter of $9.5 billion, up from $9.02 billion in the same period a year ago.
Tax overhaul charges have crimped fourth-quarter results for most big banks. Morgan Stanley recorded a one-time $1.2 billion tax provision, the smallest among the banks.
Shares of the sixth-largest U.S. bank Thursday rose 1.3 percent to $55.35 in pre-market trade.
Investment banking revenue rose 12.4 percent to $1.55 billion, while wealth management rose 10.5 percent.
Morgan Stanley’s wealth management business continued to grow. That division, which has been a top priority for the bank for years, reported a pre-tax profit of $1.2 billion compared with $891 million in the same period a year ago. Unlike stock trading and advisory fees, wealth management is a steady business where Morgan Stanley can earn fees on the assets it has under management for its roughly 3.5 million customers.
However, Morgan Stanley’s biggest source of income, trading revenue, fell 19.5 percent to $2.25 billion.
The institutional securities division, which includes the firm’s trading desks and its investment bank, saw a modest fall in profits and revenue in the quarter, largely due to a small drop off in investment banking advisory revenue. Trading was down in line with Morgan Stanley’s competitors, with bond trading revenue down by roughly half. Stock trading, where Morgan Stanley is strongest, had steady revenue from a year ago.
For the full year, Morgan Stanley had a profit of $7.08 billion, excluding the tax impact, or $3.60 a share. The firm’s return on common equity, which measures how well the bank is performing with the assets it has, was 9.4 percent excluding the tax charges. That’s close to the 10 percent goal that the bank’s management had set.
Frontpage October 1, 2019