US investment bank Morgan Stanley stated that it will likely not be able to hit its medium-term financial targets this year due to the ongoing economic effects of the coronavirus pandemic. The statement comes as the company reported a 30 percent drop in its first-quarter profits this year.
Before the spread of the virus in January, Morgan Stanley's chief executive officer, James Gorman, had upgraded the company's performance targets for the year. He also set new goals to cut costs and vowed to increase returns on equity and wealth management profits for 2020 and the next few years.
As the effects of the viral pandemic started to weight on its business, Morgan Stanley was forced to set aside billions of dollars to cover possible losses that might be incurred in the coming months. As millions of people are now left jobless and the US economy now believed to be in a technical recession, Morgan Stanley stated that its previous targets will likely be beyond reach.
Gorman noted during a conference call that the duration and scale of the health and economic crisis remains uncertain. Due to this fact, he believes that the markets will continue to be very fragile and it will likely take time for the economy and the bank's business to fully recover.
The CEO, who recently recovered from COVID-19, told investors that it would be irresponsible of him to commit to the company's previous targets. He warned that the bank will be unable to meet its targets for the second quarter.
Unlike other major US banks such as JPMorgan Chase, Morgan Stanley does have the advantage of not having large amounts of consumers and credit card loans. It also doesn't have a large amount of balance sheet investments similar to Goldman Sachs.
Because of this advantage, Morgan Stanley has proven to be much more resilient in dealing with the economic effects of the pandemic. Its robust trade performance has managed to somewhat bolster its earnings, reporting double-digit growth in its bond and equities trading businesses.
For the first quarter, Morgan Stanley reported a 30 percent surge in its trading revenue, thanks to the wild swings the markets during the first three months of the year. Equities trading revenue surged by 20 percent, while bond trading climbed by 29 percent during the period.
The bank's wealth management unit, which accounts for around half of its total revenue, had dropped by 8 percent during the quarter to $4.04 billion. Its advisory revenue for the first quarter also fell by 11 percent amid the global decline in financial activity. Investment management revenue fell by 14 percent to $692 million for the quarter.
