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Portfolio > Asset Managers

Morgan Stanley Profit Falls 30% on COVID-19 Impact

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Morgan Stanley headquarters in New York (Photo: Bloomberg)

Morgan Stanley’s net income fell 30% in the first quarter to $1.7 billion from a year ago, while its earnings dropped 27% to $1.01 per share due to “the impact of the [coronavirus] pandemic on each of our businesses,” it said Thursday. Revenue declined 8% to about $9.5 billion. 

“The decline of asset prices, reduction in interest rates, widening of credit spreads, lending and counterparty credit deterioration, market volatility and reduced investment banking activity had the most immediate negative impacts on our first quarter performance,” the bank explained.

The wealth unit’s revenue also fell by 8% from a year ago to $4.04 billion. Its net income weakened 6% to $864 million, but it had a pretax margin of 26%in Q1’20, ahead of rival Bank of America Merrill Lynch’s 23%). 

Chief Financial Officer Jonathan Pruzan said the firm is upbeat about the unit overall. “Our growth strategy is working, as clients are seeking professional advice during turbulent times, particularly with increased complexity,” he said on a call with equity analysts.

“Client activity was extremely strong, reflecting high levels of engagement throughout the quarter, as clients repositioned portfolios and moved into cash and other short-term securities. Today, clients hold [some] 23% of assets in cash and short-term securities,” Pruzan explained.

Advisor Headcount

Morgan Stanley has 15,432 advisors, down 36 from the prior quarter and 276 from a year ago. Their average yearly fees and commissions are $1.05 million, about 12% less than the prior quarter and 7% from a year ago. 

Total assets for the wealth unit are $2.4 trillion. Average assets per advisor in Q1’20 were $155 million vs. $175 million in Q4’19 and $158 million in Q1’19. Fee-based assets are roughly $1.13 trillion. Flows of these assets in the first quarter were $18.4 billion vs. $24.9 billion in the prior quarter and $14.8 billion in the year-ago period. 

The chief two negative factors for the quarter were “movements in investments associated with [$3 billion of] employee deferred cash-based compensation plans,” Pruzan said, and “prepayment amortization.” 

The combined impact, he added, led to a drop of $500 million in revenue and 150 basis points in its margin. “The underlying fundamentals of this business remain quite strong,” according to the CFO.


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