Morgan Stanley's trading rout sets grim tone for fourth quarter

Mon Oct 19, 2015 2:51pm EDT
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By Richa Naidu and Olivia Oran

(Reuters) - Morgan Stanley (MS.N: Quote) on Monday warned that there was little hope for a quick turnaround in its key trading business given the persistence of global growth concerns that helped pummel the bank's third quarter earnings.

Chief Executive James Gorman was put on the defensive after a 42 percent slide in bond trading, one of its worst performances since the financial crisis, and a drop in its private-equity business sent net income skidding.

"We're by no means complacent about this," Gorman told analysts after the forecast-lagging results. "We want to make sure this isn’t a long-term trend and we’ll take whatever steps we need to take."

Gorman said recent management changes, such as the promotion of global equities head Ted Pick to oversee all of trading, would allow better coordination between the firm's bond and equities desks.

Pick, who previously helped to turn around Morgan Stanley’s equities business into the top franchise on Wall Street, has his work cut out for him.

While factors such as doubts about Federal Reserve rate policy and China's economic slowdown have wreaked havoc on many banks' trading results, Morgan Stanley's bond trading performance was the worst on Wall Street, outpacing a 33 percent drop at arch rival Goldman Sachs (GS.N: Quote).

The impact of trading on the bank's bottom line comes despite Morgan Stanley's efforts to insulate itself from market gyrations by focusing more on wealth management.

Chief Financial Officer Jonathan Pruzan offered little hope the trading environment would improve anytime soon.   Continued...

The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, January 20, 2015.   REUTERS/Mike Segar