Turns out trade wars — or, at least, the fear of trade wars — have an upside on Wall Street.
Morgan Stanley shares rallied on Wednesday after the bank reported that the first three months of 2018 were its most profitable quarter ever, goosed by tax cuts and stepped-up trading, as trade-war fears made for volatile markets.
Sales and trading revenue at the United States’ sixth-biggest bank rose 26 percent in the quarter, driven by strong gains in equities trading. After a subdued 2017, volatility has returned to global financial markets, roiling stocks, bonds, currencies and commodities on fears of a trade war between the United States and China as well as concerns about inflation.
This has led to big revenue gains at Morgan Stanley, in line with similar gains at JPMorgan Chase and Goldman Sachs, which in recent days also reported their best-ever quarters.
But — unlike JPMorgan and Goldman, whose stellar results nevertheless missed investors’ lofty expectations — Morgan Stanley saw its shares rally, recently up 3 percent in early Wednesday trading at $54.86.
The lender led by CEO James Gorman reported a record $2.7 billion in profit, or $1.45 a share, for the first quarter, up 38 percent from the year before. Analysts had expected $1.23 a share.
“2018 began on a very strong footing,” Gorman said on a conference call with analysts on Wednesday.
Gorman struck an optimistic tone during the call, and used it as an opportunity to call for lighter regulation that would allow the bank to boost leverage and and jettison some reporting standards set out in the so-called Volcker rule, which stops banks from trading with their own funds.
The Federal Reserve is currently considering making changes to the so-called leverage ratio, which forces banks to raise more emergency cushion capital if they want to use borrowed money to finance trading.
The current proposal would effectively let banks use more leverage in most cases.
“I don’t think we’re going to be worse off under that scenario than we are today,” Gorman said.
Gorman echoed Goldman Sachs CFO Marty Chavez, who on Tuesday said he was “supportive” of the Fed’s goal of upping leverage in the financial system.
Morgan Stanley’s total trading revenue was $4.40 billion, slightly better than Goldman’s $4.39 billion.
Morgan Stanley’s bond trading revenue rose 9.3 percent on increased client activity after several sluggish quarters, in contrast to rivals JPMorgan Chase and Citigroup.
Wealth management revenue rose 7.8 percent while pretax profit margin came in at 27 percent, the mid-point of Chief Executive Officer James Gorman’s target of 26 percent to 28 percent.
Under Gorman, Morgan Stanley has been relying more on businesses that generate steady fees, like wealth management, after its risk-taking nearly capsized it during the 2007-2009 financial crisis.
Investment banking revenue rose 6.8 percent, helped by higher advisory fees, while total underwriting revenue rose 2 percent.
For comparison, Goldman’s investment banking revenue grew 5 percent, while total underwriting revenue rose 27 percent.
Morgan Stanley’s total revenue rose 13.7 percent to $11.08 billion.
With Reuters
