Morgan Stanley’s Kelleher Sees ‘Over Exuberance’ on Trading
(Bloomberg) -- Morgan Stanley President Colm Kelleher said it’s too early to declare a lasting rebound in Wall Street trading revenue.
“There’s a bit of over-exuberance about how well people are doing,” Kelleher said Tuesday in a Bloomberg Television interview. “If you look at underlying flows, yes they’ve picked up, particularly since the election, but the overall fee pool that relates to fixed income and equities is only marginally up on the year.”
The surprise victory of President-elect Donald Trump raised expectations for lower corporate taxes, higher interest rates and the possibility that bank regulations could be eased. In combination with gains posted earlier in the year, global investment banks are on pace for their first annual bond-trading revenue increase in four years.
JPMorgan Chase & Co. and Bank of America Corp., the two biggest U.S. banks, forecast fourth-quarter trading gains earlier this month. Trading revenue is up at least 15 percent at JPMorgan compared with the same period last year, Chief Executive Officer Jamie Dimon said Dec. 6. Brian Moynihan, CEO at Bank of America, said the same day that revenue from fixed-income, commodities and currencies at his company is up about 15 percent. He didn’t provide an overall trading figure.
“Am I positive about 2017, 2018? Yes,” Kelleher said. “Do I think we’ve seen the bottom of FICC revenues, with the low point in the third quarter of last year? Without a doubt. Do I think there could be some regulatory tailwinds that could help here? Yes. But these are not fourth-quarter events.”
Morgan Stanley fell to its low for the day after Kelleher’s comments, and was down 0.8 percent to $42.65 at 12:26 p.m. in New York.
Part of Kelleher’s caution may stem from Morgan Stanley’s business mix, which is more heavily weighted toward equities. The firm is the biggest Wall Street shop by revenue in that market, which didn’t see the same fourth-quarter boost that fixed income did, he said. The company cut a quarter of its fixed-income staff at the end of last year in response to a multi-year downturn.
In the wide-ranging interview, Kelleher said he doesn’t expect a significant rollback in regulations put in place after the financial crisis.
“The basic thrust of regulation post-2008 made a lot of sense for the financial markets, so I think the scaling back has to be thoughtful,” he said.