Morgan Stanley has suffered a $ 911 million loss to Archegos
Morgan Stanley was hit with $ 911 million in a coup last month in Archegos, the family office of Bill Hwang, which resulted in billions of dollars in losses in global investment banks.
The decline was a mistake in the set of earnings in the first quarter of Wall Street banking when business, trade and wealth management revenues increased.
The earnings statement referred to a $ 644 million credit loss and a $ 267 million trading loss with “a single major brokerage client,” with CEO James Gorman later confirming that it was Archegos.
“We are never happy to take losses, but we have to face the events and get them,” Gorman said in a call with analysts. “We also took the extra to clear up in the final quarter – we didn’t want it for long.”
He added that the bank’s approach in these crises is to “cauterize bad things” and said the nearly $ 1 billion loss is “necessary and money well spent”.
Rivals who were slower to get out of their positions, such as Nomura and Credit Suisse, were worse off from the fall of the Archegos. The Swiss bank lost at least $ 4.7 billion and the Japanese lender about $ 2 billion, but Goldman Sachs escaped largely unscathed.
“I don’t think we’ve ever had a loss in the brokerage business, the risk is very well managed and it’s been there for decades,” Gorman said. “Family offices are not inherently bad. . . Let’s not throw the baby in the bath water. . . this is a very idiosyncratic event. “
However, CFO John Pruzan said the bank is reviewing the division and will “recalibrate when it needs to be done and when it is needed”. He said he was also looking at other customers in the family offices to see if there were “suspicious patterns of facts” that could indicate whether they were “copied.”
Pruzan blamed the rules on reporting lax family offices and said Archegos had not reported leveraged share positions with other banks.
“It was not true that we had guarantees based on a certain set of events,” he added. “Because the company had big positions in the names with other banks on the street, we didn’t know.”
Archegos aside, Morgan Stanley gave a good result in the first quarter. Overall net income was $ 4.1 billion, up from $ 1.7 billion a year earlier. According to FactSet, earnings per share of $ 2.19 were converted, beating analysts ’expectations of $ 1.72 per share.
Net income rose 60 percent to $ 15.7 billion, following a sharp rise in its three departments. Investment banks rose 128 percent, largely as a result of the initial public offering and the Spac boom in equity procurement. Fixed income income was 44 percent higher.
“We need to talk about such embarrassment,” Archegos said, considering record results for most other business lines, said Evercore analyst Glenn Schorr. He put the title of his note: “Other than that, it was a great neighborhood, Mrs. Lincoln.”
Four other major banks on Wall Street also reported a quarter of an explosion in investment banks. Goldman had a 73 percent growth in that business and, on average, revenue rose 59 percent.
Elsewhere, revenue from Morgan Stanley’s wealth and investment management units rose 47% and 90%, respectively.
Gorman noted that we have provided “results in the document”. “Integrated investment banking continues to thrive. . .[and]wealth management brought in $ 105 billion in cash flow records. The company is well positioned for growth. “
Gorman has been available in recent years. In early 2020, it negotiated the $ 13 billion brokerage of the ETrade line and the purchase of 5 million of its customers. After that, a $ 7 billion deal was made to buy investment manager Eaton Vance, surpassing JPMorgan’s rival, and its assets in management nearly doubled to $ 1.2 billion.
Morgan Stanley’s first quarter came after a good 2020 year with gains a record despite the devastation caused by the coronavirus pandemic.
Shares of the bank more than doubled from the lowest pandemic a year ago and rose 18% this year, surpassing the 11% rise in the S&P 500.
Additional report by Laura Noonan