Weak markets leave Morgan Stanley struggling to reach return-on-equity target

Mon Apr 18, 2016 2:03pm EDT
 
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By Olivia Oran and Richa Naidu

(Reuters) - Morgan Stanley's trouble growing revenue in weak markets may prompt management to take further actions to achieve financial goals, Chief Executive James Gorman said on Monday.

His comments came after the Wall Street bank released first-quarter results showing that its profit tumbled by more than half. Trouble in fixed-income markets cut deep into Morgan Stanley's trading revenue. The business of underwriting stocks and bonds was also difficult.

Sliding commodity and oil prices, worries about the Chinese economy and uncertainty about U.S. interest rates scared off traders, investors and companies hoping to issue debt or list on stock exchanges early in the quarter.

Morgan Stanley's return-on-equity, a key measure of how well it uses shareholder capital to earn profits, was 6.2 percent, well below Gorman's goal of 9 percent to 11 percent by the end of next year.

"It must be said that if these markets were to continue as is, our goals would be extremely difficult to achieve and we would therefore take additional appropriate actions," Gorman said on a conference call with analysts.

He later added that Morgan Stanley's shareholder return was "not acceptable" and that the bank might need to get "much more aggressive" on cost cutting.

Analysts were initially bullish on Morgan Stanley's results because it beat their subdued expectations by a wide margin. But as the call went on, Gorman and Chief Financial Officer Jon Pruzan were hammered with questions about how it will achieve its financial goals if market conditions do not improve.

Morgan Stanley shares were down 15 cents at $25.61 in midday trading. The stock fell about 21 percent in the quarter - the sharpest decline of any big U.S. bank.   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