Wall Street banking giant Morgan Stanley’s profits have nearly halved due to intense US recession fears and rising interest rates chilling deal making activity, the firm announced today.
The lender has become the latest casualty of businesses and investors parking their money in safer places to ride out the worldwide economic slowdown.
Morgan Stanley’s profits tumbled 41 per cent over the final months of last year compared to the same period in 2021.
Profits dropped to $2.11bn (£1.7bn), dragged down by investment banking income scaling lower to $1.25bn (£1bn).
A near halving in investment banking revenue caused by a “significant” drop off in deal making and stock trading hobbled Morgan Stanley’s bottom line.
Despite the hit, Morgan Stanley beat analysts’ expectations, sending its shares up more than seven per cent in early trading on Wall Street.
Morgan Stanley also signalled it is preparing for a US recession to push up losses stemming from borrowers falling to repay their debts. It set aside $87m (£71.2m) to cope with loan losses, up from a $5m (£4.1m) build up last year.
US banks earnings season over the past week have been marked by some of the sector’s big hitters suffering big profit falls.
Goldman Sachs today revealed that profits have nearly halved, as did consumer-focused lender Wells Fargo last week. JP Morgan fared reasonably well.
Investment banking revenue has also slipped at Citi, JP Morgan and Bank of America.
The US Federal Reserve has lifted interest rates at the quickest pace since the 1980s, making it more expensive for investors to pump money into companies, making them more reluctant to buy into firms.
The spectre of a recession in the world’s biggest economy has sparked a wave of job cuts at Wall Street’s top banks to cut costs.
Morgan Stanley has shed more than 1,000 bankers, while Goldman Sachs last Wednesday told staff they could be laid off as part of a more than 3,000 person redundancy drive in what will be the bank’s biggest culling since the financial crisis.
US banks’ earnings season, which finished today, has unveiled the sector’s bigwigs, including JP Morgan’s Jamie Dimon, are wrapping their finances in cotton wool to withstand an economic slump.