The Morgan The Merrier

Morgan Stanley earnings

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What's going on?

On Wednesday, Morgan Stanley wrapped up the big American banks’ first-quarter updates with aplomb: both revenue and profit beat investors’ expectations.

What does this mean?

Investors focused on Morgan Stanley’s trading business, as they did with rival banks’ earnings reports. Revenue there was 15% lower than last year: Morgan Stanley missed expectations on share trading, but surpassed them with its dealings in bonds, currencies, and commodities. Revenue from advising on swashbuckling merger deals, meanwhile, fell by a quarter versus last year – missing forecasts.

But Morgan Stanley’s businesses looking after other people’s money – wealth and investment management – really brought home the bacon last quarter. Revenue there rose more than expected and, thanks to lowered costs, helped profit to exceed expectations too.

Why should I care?

The bigger picture: Investment managers are cool again.

Last year, investment management firms suffered (some really suffered) as investors, unnerved by the stock market turmoil late in the year, pulled money out of funds and kept more in cash. But that appears to have reversed in the first quarter of 2019. Investors piling into rising stock and bond markets were to thank for the world’s biggest investment manager, BlackRock, growing its pool of funds by $65 billion – the strongest quarterly rise since 2017.

For you personally: Consumer banks head home.

Thanks to higher interest rates, big banks on Main Street – keeping savings safe and making small business and personal loans – have increased their “net interest margin”: the difference between the amounts they charge borrowers and pay their own creditors. But Bank of America, whose record first-quarter profit on Tuesday was partly down to this widening gap, doesn’t expect to repeat the trick later in 2019 now interest rates appear frozen. Some consumer banks have instead lowered mortgage rates as the peak homebuying season approaches – perhaps hoping to make up for narrowing margins with more customers.

Originally posted as part of the Finimize daily email.

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