(Reuters) -Morgan Stanley on Friday reported a 30% slump in third-quarter profit, missing analysts’ estimate as a slowdown in global dealmaking hurt the investment bank’s core underwriting business, sending its shares down 3.3% before the bell.
The outlook for deals has steadily worsened this year as the U.S. Federal Reserve raised interest rates to tame inflation, clouding the economic growth outlook, while the highs of a record last year drew tough comparisons.
“Firm performance was resilient and balanced in an uncertain and difficult environment,” Chairman and Chief Executive James Gorman said, adding its wealth management unit demonstrated scale and stability.
Global M&A lost ground for the third straight quarter with volumes in the United States plummeting nearly 63% as the rising cost of debt forced companies to delay big buyouts.
Investment banking revenue more than halved to $1.3 billion, with declines across the bank’s advisory, equity and fixed income segments.
Companies have also been delaying plans to go public amid depressed investor sentiment due to turmoil in financial markets triggered by the Ukraine war and rapidly rising borrowing costs.
For a dealmaking rebound, Chief Financial Officer Sharon Yeshaya told Reuters both cost of capital and valuations need to stabilize.
When asked about potential headcount cuts amid the current challenging environment, she said the bank was constantly evaluating its resourcing.
Morgan Stanley (NYSE:MS)’s net revenue in the quarter fell 12% to $13 billion. The bank reported a profit of $2.49 billion, or $1.47 per share, for the quarter ended Sept. 30, compared with $3.58 billion, or $1.98 per share, a year earlier.
Analysts on average had expected a profit of $1.49 per share and revenues of $13.3 billion, according to Refinitiv IBES data. It was not immediately clear if the reported numbers were comparable with the estimates.
Morgan Stanley joins rivals JPMorgan Chase (NYSE:JPM) and Co and Well Fargo & Co which reported similar hits to their quarterly profit on Friday amid uncertain economic conditions that have led banks to build rainy day funds.
The investment bank increased its provision for credit losses to $35 million from $24 million a year earlier against the backdrop of rising fears of a recession in the United States.
Morgan Stanley’s wealth management business, which tends to generate steady income, was a surprise bright spot, posting a 3% rise in revenue, helped by a 49% jump in net interest income amid rising Federal fund rates.
Source: Economy - investing.com
