Morgan Stanley’s stock traded about flat Wednesday after it beat first-quarter earnings projections and said it had built up its piggy bank to protect against losses in commercial real estate and other business lines.
While the bank surpassed reduced analyst expectations, its profit fell 19% as a scarcity of initial public offerings, M&A deals and capital-raising activities cooled off.
On Wednesday, shares in Morgan Stanley
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— the last of the six largest U.S. banks to release first-quarter results — rose fractionally after dropping earlier in the day. The stock has been on the upswing in recent days as other banks such as JPMorgan Chase & Co.
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topped their earnings targets.
In a sign that commercial-real-estate exposure is weighing on the financial sector, Morgan Stanley said it had built up its provision for credit losses by $177 million to $234 million in the first quarter, up from $57 million in the year-ago quarter.
“Increases in provisions for credit losses were primarily related to commercial real estate and deterioration in the macroeconomic outlook from a year ago,” the bank said.
Morgan Stanley said it’s been reducing its exposure to commercial real estate in its portfolio during the past 12 months. The bank also said its real-estate portfolio is diversified.
Morgan Stanley’s first-quarter profit fell to $2.84 billion, or $1.70 a share, from $3.54 billion, or $2.02 a share, in the year-ago quarter.
First-quarter revenue declined to $14.52 billion from $14.8 billion. Morgan Stanley was predicted to earn $1.68 a share, with revenue of $13.97 billion, according to analyst estimates compiled by FactSet.
CEO James Gorman said Morgan Stanley had delivered strong results “in a very unusual environment.”
The bank added $110 billion in new assets in its wealth-management unit, with “strong” equity and fixed-income revenue, while investment-banking activity remained “constrained,” Gorman said.
Broken out, investment-banking revenue fell 24%, equity net revenue dropped by 14% and fixed-income net revenue dropped 12%. On the plus side, wealth-management revenue increased by 10.5% to $6.56 billion.
On a conference call with analysts, Morgan Stanley CFO Sharon Yeshaya said investors turned to cash during the volatility around regional banks on the heels of Silicon Valley Bank’s collapse last month due to a run on deposits.
“The events in March and the rising interest rate environment over the past year impacted client behavior,” Yeshaya said. “Clients increased their allocation to cash equivalents, such as money market funds and U.S. Treasuries, by over 60% versus last year. At the same time, deposits declined in the quarter by 3% to $341 billion. We believe investable assets stayed within Morgan Stanley as our clients worked with advisors to help navigate the volatile markets.”
Ahead of Morgan Stanley’s first-quarter results, analysts lowered their expectations amid a moribund deal-making environment.
Back on Sept. 30, analysts covering Morgan Stanley were expecting first-quarter earnings of $1.95 a share. That consensus forecast fell to $1.83 a share by the end of 2022 and was further reduced to $1.72 a share from $1.79 a share after March 31, according to FactSet data.
See: Goldman Sachs’s stock falls as profit tops target but revenue falls short
Also: Bank of America beats profit targets and sees record inflows of $37 billion from new and existing clients
