Morgan Stanley profit plunges 42% as trading revenue slumps

NEW YORK: Wall Street bank Morgan Stanley's profit slumped for the second straight quarter as investors fled the bond, currency and commodity markets amid uncertainty about the timing of a US interest rate hike and concerns about China's cooling economy.

Morgan Stanley, the last of the big US banks to release third-quarter earnings, said on Monday its trading revenue fell 17.2 percent to $2.03 billion in the period, contributing to a 42.4 percent drop in profit attributable to shareholders.

The bank's shares were down 5.8 percent in premarket trade.

Morgan Stanley joins arch rival Goldman Sachs Group Inc as well as Citigroup Inc , Bank of America Corp and JPMorgan Chase & Co in reporting grim results from trading, a business many of them are trying to back away from.

The results also capped a generally downbeat quarter for the six big US banks. Among them, only Wells Fargo & Co managed an increase in revenue, while Citi turned in the biggest rise in net profit - 51 percent - largely due to cost cuts.

"The volatility in global markets in the third-quarter led to a difficult environment, impacting in particular our fixed income business and our Asia merchant banking business," Chief Executive James Gorman said in a statement.

Earnings applicable to common shareholders fell to $939 million, or 48 cents per share, from $1.63 billion, or 83 cents per share, a year earlier. Excluding items, the bank earned 34 cents a share.

Analysts on average had expected earnings of 62 cents per share, according to Thomson Reuters I/B/E/S. It was not immediately clear if the reported figures were comparable.

Consolidated net revenue fell 12.8 percent to $7.77 billion in the three months ended Sept. 30. Excluding accounting adjustments, net revenue was $7.33 billion, missing the average analyst estimate of $8.54 billion.

WEALTH REVENUE SLIPS

Revenue in the bank's increasingly important wealth management business fell 3.5 percent to $3.64 billion, but accounted for 46.9 percent of revenue, compared with 42.4 percent in the same quarter last year.

The pre-tax margin in the wealth business also expanded to 23 percent from 22 percent, within Gorman's target of 22 to 25 percent by the end of the year.

Morgan Stanley has been focusing on wealth management since the financial crisis as focuses less on volatile businesses such as bond trading to free up capital.

Like other big banks, Morgan Stanley has also been trading less off its own balance sheet to comply with stricter regulations designed to protect the financial system.

Revenue from investment banking, a traditional strength for the bank, fell 15.3 percent to $1.31 billion in a strong M&A market. Morgan Stanley ranked second globally in mergers advisory volumes in the first nine months of the year, after Goldman, according to Thomson Reuters data.

Morgan Stanley said it had spent 18.4 percent less on employee compensation in the quarter, the lowest since the second quarter of 2010.

Weak trading revenues are likely to mean Wall Street bankers and traders will get smaller bonuses this year.

Up to Friday's of $33.95, Morgan Stanley's shares had fallen 12.5 percent this year, underperforming the KB banking index , which dropped 4.4 percent.