In what has been a lackluster earnings season so far, Morgan Stanley (MS) on Thursday reported a complicated second-quarter story that included a disappointing 53% drop in profits, which totaled $563 million, compared with profits of $1.19 billion a year ago.
Earnings per share came to 28 cents for income from continuing operations versus last year’s loss of 36 cents a share. The loss included a negative adjustment of about $1.7 billion, or $1.02 per diluted share, related to the conversion of preferred stock held by Mitsubishi UFJ Financial Group. Morgan Stanley in its Q2 release also reported net revenues of $7 billion for the quarter compared with $9.2 billion a year ago. Analysts polled by Thomson Reuters had expected earnings per share of $0.43 on revenue of $7.7 billion.
The number of Morgan Stanley Smith Barney (MSSB) advisors in the Global Wealth Management Unit dropped 2% from last quarter and 6% from last year to 16,934, while total assets under management stood at $1.71 trillion, 2% lower from the previous quarter but 1% higher than a year ago. MSSB counted 17,193 advisors in the previous quarter and 17,987 advisors a year ago.
These global reps produced average trailing-12-month fees and commissions of $775,000, 2% higher than revenues last year of $762,000. They managed average client assets of $101 million, unchanged from last quarter but 7% higher than last year’s figure of $94,000.
Other banks also struggled during the quarter, with both JPMorgan Chase & Co. and Goldman Sachs reporting a drop in earnings as trading losses, market volatility and the eurozone sovereign debt crisis cut into profits. But Morgan Stanley’s performance was especially weak.
“There’s a lot here, and generally, the results were disappointing,” said Shannon Stemm, a finance sector analyst at Edward Jones, in a phone interview. “Trading revenues were expected to be weak, because the environment was weak, but Morgan Stanley’s came in well below what many of their peers were able to post, and I think that’s driving the underperformance in the stock today.”
Morgan Stanley's stock fell in morning trading and by noon was down 64 cents per share, or 4.58% lower, at $13.35 versus the prior day’s close of $13.99.
Morgan Stanley's Global Wealth Management Group, which includes the MSSB joint venture, reported net revenue of $3.3 billion, with a pretax profit margin of 12% versus 11% in the prior quarter and 9% a year ago.
“The pretax profit margin, which is the number that analysts really look at in the Global Wealth Management unit, rose from 11% to 12% in the second quarter,” Stemm said. “So despite the fact that the unit saw a revenue decline, they were able to manage expenses. They failed to achieve the mid-teens and above target that they’ve been after for a number of years, but now that the Smith Barney integration really is behind them, they should be able to make some headway on further improving the profitability in that segment. We would anticipate that the 12% margin does go up from here.”
Although global economic uncertainty remains a headwind, Morgan Stanley is “proactively” positioning the firm for success, said Chairman and CEO James Gorman in a statement. “In Global Wealth Management, we increased our pretax margin to 12% in an environment marked by investor caution, and we integrated substantially all of our technology systems, which should bring additional value to our clients. We continue to be focused on taking the necessary steps to deliver strong returns for our shareholders.”
Company officials said they continue to attract new advisors to MSSB. Advisors who recently joined MSSB include:
The Henry Group—Brent Henry, Dustin Colebank and Mike Hudson—joined MSSB's Rogers, Ark., office from Merrill Lynch. They are joined by team members Pamela Raben, registered marketing associate; Josh McCaslin, financial advisor; and Toni Peckenpaugh, client service associate. The team reports to Little Rock Complex Manager John Terry. They bring $2.35 million in combined production and $230 million in prior assets.
Eliot Ross joined MSSB's Park Central branch in New York at 55 East 52nd St. from Barclays. Ross reports to David Turetzky, branch manager. He brings $1.03 million and $98 million in assets.
Sheldon Hechtman and Ellen Klersfeld joined MSSB's Boca Raton, Fla., office from UBS. They report to Boca Raton East Complex Manager Michael Higgins. Combined production: $1.59 million; prior assets: $211 million.
Blane Hammer joined MSSB's Wayzata, Minn., office from UBS. He reports to Branch Manager Peter Keller. Production: $1.35 million; prior assets: $120 million.
Read more coverage of the Q2 2012 earnings season at AdvisorOne.