Gorman shows off sensible tortoise strategy
James Gorman failed to deliver blowout earnings in his first quarter running Morgan Stanley. Trading and investment banking revenue, for example, was largely below rivals. But neither the new Morgan Stanley chief nor shareholders should be grumbling at the $1.8 billion earned by the Wall Street firm in the first three months of the year.
The bottom line includes a $382 million tax benefit from keeping earlier undistributed non-U.S. earnings abroad for reinvestment. But even without this, Morgan Stanley still posted a 13.1 percent return on equity. That’s not as juicy as Goldman’s 20.1 percent ROE, or the 25 percent JPMorgan’s investment bank reported. But after a year of either losses or lowly returns, it’s still a welcome improvement.
What’s more, all three of Morgan Stanley’s major business units performed better. Asset management reported its first pre-tax profit since the last quarter of 2007, thanks to gains instead of losses from its real estate-heavy investment portfolio and a decision to sell its retail money-management business. Meanwhile, despite a slight drop in revenue in global wealth management, the pre-tax margin jumped more than a quarter since December, to 9 percent.
And Morgan Stanley’s trading desks picked up, too. They were helped by not having to record any accounting losses on the firm’s own liabilities, which last year lopped off $5.5 billion of revenue. Even excluding that reversal of fortune, debt trading more than doubled to $2.7 billion, while equities trading improved by 55 percent to $1.4 billion.
Fixed income still far underperformed rivals. Bank of America, Citi and JPMorgan each raked in at least double Morgan Stanley’s tally. And Gorman’s shop only made 37 percent of Goldman’s take — the same lag as last year.
That’s probably the clearest indication Morgan Stanley is still in post-crisis catch-up mode. These results don’t show much evidence the 400 recently hired traders have yet helped to boost the pace. But that’s a comfort, too. Had trading results taken off like a mad March hare, it would have been a red flag suggesting an unhealthy appetite for risk. Instead, Gorman seems to be sticking to the tortoise strategy. The steady progress it’s producing is far more welcome.