Good Q4 showing at two Wall Street banks

Morgan Stanley's Times Square headquarters in New York. The bank yesterday reported US$908 million (S$1.3 billion) in fourth-quarter profit and a revenue gain that exceeded analysts' estimates.
Morgan Stanley's Times Square headquarters in New York. The bank yesterday reported US$908 million (S$1.3 billion) in fourth-quarter profit and a revenue gain that exceeded analysts' estimates.PHOTO: BLOOMBERG

NEW YORK • Two Wall Street banks yesterday reported better-than-expected quarterly profits, pushing their shares higher in early trade.

Morgan Stanley reported US$908 million (S$1.3 billion) in fourth- quarter profit and a revenue gain that exceeded analysts' estimates as equity trading rose and expenses fell. The firm said it failed to meet its goals for revamping the fixed-income business.

Bank of America, the No. 2 bank in the US by assets, also reported a rise in profit for the final quarter of 2015, helped by a drop in expenses and revenue growth in three of its four big businesses during a tough period for the industry.

Banks in the United States, like their global counterparts, have had a rough year as falling oil prices and worries about slowing growth in China contributed to weakness in credit markets, pressuring revenue growth. The new year also started on a grim note as oil prices fell below US$30 a barrel and stock prices slumped.

Morgan Stanley said in a statement that its profit was US$908 million, or 39 US cents a share, compared with a loss of US$1.6 billion, or 91 US cents, a year earlier, when the firm booked costs tied to litigation over mortgage-related matters.

Excluding accounting adjustments, earnings were 43 US cents a share, beating the 32 US cent average estimate of analysts surveyed by Bloomberg.

CEO James Gorman is attempting to strike the right balance in Morgan Stanley's bond trading business amid the industry's years-long slide in revenue. The firm said last month that it was taking a US$150 million severance charge as it pared its fixed income trading business.

The cuts affected 1,200 employees, including about a quarter of its fixed income trading staff, a person briefed on the matter said.

"A strong overall performance in the first half of the year was impacted by difficult market conditions in the second half that dampened trading activity," Mr Gorman said in the statement.

"In the fourth quarter, we took action to meaningfully restructure our fixed income business on a capital and expense basis."

Morgan Stanley shares rose 3.4 per cent to US$26.85 in early trade.

Bank of America also reported higher fourth-quarter earnings as lower expenses and solid overall loan growth offset the hit from its exposure to the slumping oil sector.

Earnings for the quarter ending Dec 31 were US$3.3 billion, up 9.3 per cent from the year ago period. Revenues rose 4.2 per cent to US$19.8 billion.

The bank saw non-interest expenses fall 2.2 per cent to US$13.9 billion, while overall loans rose 2.7 per cent to US$890.7 billion.

But, like other large banks, Bank of America was forced to set aside higher reserves in case of defaults in the energy sector. Earnings for last year came in at nearly triple the prior year's at US$14.4 billion.

As with other banks, Bank of America's 2014 results were marred by huge legal expenses in the aftermath of the 2008 global financial crisis.

"The 2015 results were our highest earnings in nearly a decade," said CEO Brian Moynihan.

"We saw solid customer activity in loan growth, deposits, and wealth management asset flows, and we returned more capital to our shareholders."

Its shares rose 1.9 per cent to US$14.73 in pre-market trade.

BLOOMBERG, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on January 20, 2016, with the headline 'Good Q4 showing at two Wall Street banks'. Print Edition | Subscribe