Morgan Stanley's Earnings Drop on Sharp Slide in Fixed-Income Revenue -- Update

By Justin Baer and Peter Rudegeair 

Morgan Stanley said its profit fell 53% in the first quarter after concerns about the economy sent shivers through the capital markets, limiting Wall Street clients' appetite to trade or make deals.

Net income dropped to $1.13 billion, or 55 cents a share, from $2.39 billion a year earlier. Analysts polled by Thomson Reuters had expected a per-share profit of 46 cents.

Revenue tumbled to $7.79 billion. Analysts polled by Thomson Reuters had forecast $7.87 billion.

Morgan Stanley and other big banks are muddling through a steep slump in their debt-trading business. The downturn prompted the firm to cut jobs from the unit, which has weighed down Morgan Stanley's return on equity, a key measure of banks' profitability. The volatile markets also conspired to weaken investment-banking activity in the first quarter, hurting a division that had been a bright spot last year.

Trading revenue fell 34% to $2.69 billion from $4.08 billion in the first quarter of 2015.

Fixed-income trading revenue fell 56% to $873 million, while the revenue from equity trading dropped 10% to $2.06 billion.

Investment-banking revenue fell 16% to $990 million from $1.17 billion in the first quarter a year ago.

Morgan Stanley's firm-wide expenses fell 14% to $6.05 billion from $7.05 a year earlier.

Return on equity fell to 6.2% from 13.5% in the first quarter, excluding an accounting adjustment. Morgan Stanley executives have pledged to lift returns to 9% to 11%.

Chief Executive James Gorman said the quarter was characterized by challenging market conditions and muted client activity.

"While we see some signs of market recovery, global uncertainties continue to weigh on investor activity," he said.

The firm's shares have tumbled 19% this year as investors fretted over Morgan Stanley's ability to weather the slowdown. The stock was inactive premarket.

Write to Justin Baer at [e-mail] and Peter Rudegeair at [e-mail]

(END) Dow Jones Newswires

April 18, 2016 07:30 ET (11:30 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.