Morgan Stanley second-quarter earnings beat forecast on cost cutting measures

Morgan Stanley second-quarter earnings beat forecast on cost cutting measures


Morgan Stanley’s earnings for the second quarter fell, but surpassed analysts’ estimates mainly due to cost-cutting measures and comparatively strong bond-trading revenue.

The company reported net income of $1.43 billion, or 75 cents a share for the three-month period ended June 30, versus an adjusted $1.69 billion, or 79 cents a share, in the same period last year. Analysts surveyed by Thomson Reuters I/B/E/S were looking for a profit of 59 cents a share for the latest quarter.

Morgan Stanley shares were up 2 percent in the regular-trading session on Wednesday following the results.

The bank has been making efforts to transform its bond-trading segment into one that centres on transactions that need small capital under new laws. It has downsized in areas such as physical commodities—trimming headcount by roughly 25 percent—and underlined more commoditized products, such as interest rate swaps.

Morgan Stanley has struggled with volatile results in the business for many years. It generated adjusted revenue of $1.30 billion from FICC (fixed income, currency and commodities trading) in the second quarter, representing a surge of 2.4 percent from the year-earlier quarter.

CEO James Gorman recently set a goal for the bank to deliver a minimum of $1 billion worth of quarterly revenue from the segment.

The company’s equities trading business posted an adjusted revenue of $2.15 billion in the quarter, down 5.5 percent from the same period last year.

Morgan Stanley is in the middle of a $1-billion cost-reduction program. The bank reported that overall non-interest costs dropped 8.4 percent to $6.43 billion in the latest quarter. Compensation expenses, its biggest cost, dropped 8.9 percent to $4.02 billion.

Speaking at a conference call, Chief Financial Officer Jon Pruzan said the bank slashed nonessential travel by half. It is also shutting data centers and shifting workers to lower-cost hubs.