Last week, the nation’s largest banks (JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and PNC) all reported year-over-year declines in net income for the first quarter. On Tuesday, Goldman Sachs is expected to report a sharp decline in profits when it releases its Q1 earnings statement.
The latest large financial firm to have its profits plummet is Morgan Stanley. According to the release of the investment banking firm’s Q1 earnings statement on Monday [1], citing market volatility during the first quarter, Morgan Stanley reported a net income of $1.1 billion for the three-month period ending March 31, 2016—a year-over-year decline of more than 50 percent from Q1 2015’s net income of $2.4 billion.
Morgan Stanley’s earnings per diluted share dropped from $1.18 to $0.55 year-over-year in the first quarter, and net revenues declined from $9.9 billion down to $7.8 billion. The firm’s return on equity (ROE), which is a key measure of profitability, dropped from 13.5 percent down to 6.2 percent.
The Q1 earnings for Morgan Stanley beat analysts’ expectations [2] of 46 cents per share and $7.87 billion in net revenue, but profits took a tumble largely driven by decreased trading activity due to sliding oil and commodity prices, concerns over global markets, and interest rate uncertainty in the United States.
“The first quarter was characterized by challenging market conditions and muted client activity.”
James P. Gorman, Chairman and CEO, Morgan Stanley
“The first quarter was characterized by challenging market conditions and muted client activity,” Chairman and CEO James P. Gorman said. “Against that backdrop, our businesses delivered stable results. While we see some signs of market recovery, global uncertainties continue to weigh on investor activity. We remain focused on executing against our priorities, helping clients navigate difficult markets while controlling our expenses and managing risk prudently.”
Also in the first quarter of 2016, for the second consecutive February, Morgan Stanley announced a multi-billion dollar settlement [3] with the federal government to resolve claims that the firm sold toxic mortgage-backed securities to investors before the crisis. This time, it was for $3.2 billion with both federal and state regulators. In February 2015, the firm announced a $2.6 billion settlement that substantially cut into profits for 2014; without the litigation costs stemming from the settlement, profits skyrocketed by nearly 75 percent in 2015.
Click here [1] to view Morgan Stanley’s compete Q1 earnings statement.