Few banks have reported much to crow about in their first-quarter earnings. But Morgan Stanley can claim relief, at least, from the $1.45 billion in net income it reported on Thursday.
Its chief executive, James P. Gorman, presided over a far better start to the year than in 2013, including bucking the Wall Street trend in fixed-income trading. More important, Mr. Gorman looks closer to hitting targets than rivals like Bank of America and Citigroup.
Even so, Morgan Stanley’s showing was not as good as Goldman Sachs’s managed results. Goldman, run by Lloyd C. Blankfein, earned an annualized return on equity of 10.9 percent in the quarter, compared with 8.9 percent at Mr. Gorman’s shop, although Goldman relied on some $500 million more in investment gains than analysts at Citigroup had expected.
Morgan Stanley’s return on equity is therefore still running shy of the 10 percent seen as a decent proxy for banks’ cost of capital. But momentum seems to be building toward that goal.
In one illustration of this, Morgan Stanley’s fixed-income, currency and commodities unit turned in a 35 percent increase in its top line from the first quarter last year. Bank of America eked out a 2 percent increase, while Citi, JPMorgan and Goldman were down 11 percent to 21 percent.
The equities trading unit also had a good quarter, with its $1.7 billion of revenue just beating Goldman’s showing for the second time in three periods.
The real juice for Mr. Gorman, though, comes from the bank’s two less capital-intensive businesses. Wealth management kept a recent trend going with a 19 percent pretax margin, just less than longer-term targets. Investment management, meanwhile, blasted out a 36 percent pretax margin, putting Morgan Stanley in the same league as market leaders like BlackRock.
Mr. Gorman was excited enough to tell investors that the earnings power of these two businesses alone could justify doubling or even tripling the bank’s dividend, if the Federal Reserve were to allow it. That won’t happen any time soon.
But with better core earnings and much less of the legal and regulatory trouble that has hurt Bank of America and Citi, Mr. Gorman can, for the first time in a while, breathe a lot more easily.
Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
