- Archegos Capital Management surprised investors with a$ 911 million loss due to the collapse of Morgan Stanley, which was otherwise a record quarter for revenue and profits.
The current quarter includes a loss of$ 644 million related to a credit event for a single brokerage client and$ 267 million of subsequent trading losses through the end of the quarter related to the same event, said Morgan Stanley in its first-quarter earnings statement on Friday.
The hit was related to Archegos, said Chief Executive James Gorman on a call with analysts. The CEO called the matter a very complex event and said that he was pleased with how the company handled it.
The philosophy of the firm is to deal with bad stuff as quickly as possible and cauterize it, Gorman said. Archegos wo n't change how Morgan Stanley views its prime brokerage business, but it will be looking hard at certain types of family offices and the adequacy of their financial disclosures, he said.
The hit leaves Bill Hwang as the only major U.S. bank to be nursing losses from the flameout of Morgan Stanley's family office. The New York-based bank was one of the early backers of Archegos despite the legal taint held by Hwang, who was previously accused of insider trading and pleaded guilty to wire fraud on behalf of his predecessor hedge fund, Tiger Asia Management in 2012.
This amount is small and should have been disclosed earlier, especially considering the level of attention before earnings, said Mike Mayo, an analyst at Wells Fargo Co. in a note to clients. We expect more from Morgan Stanley when it comes to governance and are incrementally concerned about complacency based on the tone of the conference call today.
At 1:57 p.m., the shares of the company decreased to$ 78.05 in New York and offset this year's gain to 14%.
The Archegos collapse rattled investment banks across continents, with Credit Suisse emerging as the worst hit with almost$ 5 billion in losses from its exposure to family office.
Archegos gave Morgan Stanley's equity traders their No. The 1 spot slipped behind JPMorgan Chase Co. and Goldman Sachs Group Inc., which scored big trading gains off a wild quarter for markets earlier this week.
The earnings of Morgan Stanley remained but 17% to$ 2.88 billion, compared with the median estimate of$ 2.6 billion surveyed by Bloomberg. Morgan Stanley and JPMorgan have been clawing away at Goldman Sachs' lead in that business, but until now the company has managed to stay ahead of the pack. Both rivals posted equities revenues of over$ 3 billion for the quarter.
In January, Gorman James Dimon leaped past JPMorgan as the best-paid CEO of a major U.S. bank after being awarded$ 33 million in 2020 for the firm's performance while running a company that is a third of the size of Jamie Dimon.
One reprieve for Gorman's company was the timing of the fund blowup. In any other quarter, the losses would have stood out more clearly. Instead, the hit came at a time when the bank and all its major peers have smashed one record after another, helping dull the pain.
It is such a shame we have to talk about the Archegos hit, given the strong results throughout the rest of the firm, Glenn Schorr, an analyst at Evercore ISI, said in a report titled, Other Than That, It Was a Great Quarter. Lincoln.
Fixed income revenue at Morgan Stanley increased from 24% to$ 2.97 billion compared to the$ 2.2 billion analysts had predicting before the earnings season started.
Morgan Stanley's investment bankers pulled in$ 2.61 billion in fees compared to the analyst estimate of$ 2 billion, as equity underwriting quadrupled. The quarter proved particularly lucrative with the continuing explosion in public companies, better known as Blank-check companies, as well as other offerings from technology companies.
Banks are also facing fierce demand for their top talent with the venture-capital firm General Catalyst this month fending off Paul Kwan, Morgan Stanley's head of West Coast technology investment banking.
Wealth-management revenues were$ 5.96 billion, up from$ 5.68 billion in the last quarter.
The acquisition of E Trade last year also proved timely, as average daily trading surged in the fourth quarter, well over its first-quarter record. The firm also announced the completion of the Eaton Vance takeover last month, adding another business likely to drop in revenue via recurring fee-based revenue.
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