Morgan Stanley profits plunge 42 per cent as it feels the effects of summer stock market chaos

Madeline Ratcliffe
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Chief executive James Gorman said the bank was hit by volatility in global markets (Source: Getty)

Morgan Stanley shares opened down 5.6 per cent in pre-market trading as it became the latest Wall Street giant to announce a drop in revenues, down to $7.8bn (£5bn) in the three months to the end of September.

Revenues dropped from $8.9bn the year before, and $9.7bn in the previous quarter, while net income fell to $1bn, from $1.7bn this time last year.

Like its rivals across the street, the summer equity sell-off hit the bank hard across most of its divisions, and has lead to a renewed focus on the wealth management and investment operations.

Read more: Battle of the banks: who weathered the markets best?

Despite lower revenues, $3.6bn down from $3.8bn in 2014, a margin of 23 per cent helped boost income. Pre-tax income, or profit, in the wealth management arm was $824m, down from $85m three months before, but up from $800m the year before.

The bank reported that asset management fee revenue had increased to $2.2bn from 2014, contributing to total of $7.7bn in fees and charges.

Thanks to higher levels of M&A activity, advisory revenues were $557m, up from $392m a year ago. Equity sales and trading net revenues of $1.8bn were unchanged from last year.

Fixed income and commodities sales and trading revenues, which has been one of the worst performing areas for all the big banks, almost halved to $583m, from $997m in 2014.

Read more: Bank of America returns to growth

Litigation expenses for the bank were up around $250,000 over the year, bringing expenses to $2.9bn, thanks in part to a settlement resolving claims that Morgan Stanley, among many others, conspired to limit competition in the credit-default swaps market.

James Gorman, Morgan Stanley's chairman and chief executive, said:

The volatility in global markets in the third quarter led to a difficult environment, impacting in particular our Fixed Income business and our Asia Merchant Banking business.

The firm benefited from the stability of the wealth management business, and the continued strength of our investment banking franchise. Our business model provides a steady foundation for the firm as we navigate these challenging markets and focus intensely on addressing areas of under-performance.

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