The coronavirus pandemic has entered into a second wave and currently, we are seeing a resurgence of cases in various countries which was not unexpected. The pandemic caused a lot of disturbance to banks and people and economic impact is devastating for citizens around the world.
However, Morgan Stanley which is one of the largest investment banks in the world on Thursday reported a 26 per cent rise in third-quarter profit thanks to the bank’s trading business, which grew well amid heightened volatility amid the COVID-19 pandemic.
Net income attributable to common stockholders rose to $2.60 billion for the quarter ended September 30 from $2.06 billion for the same period a year earlier. Earnings per share rose to $1.66 from $1.27.
Analysts had expected earnings per share of $1.28, according to IBES data from Refinitiv.
Revenue in the trading division was $3.09 billion, up from $2.90 billion a year earlier.
Based on information gathered from multiple brokers comments the relationship between profit disclosures and market volatility is uncanny.
Particularly the information gathered through this Axiory review, a mid-sized Forex broker, we can most definitely say that this news made it into people’s signals, telling them to act while there still is time.
Although many think that these types of announcements work more on stock prices than currencies, we need to consider the fallout caused by this massive change and the “trickle-down” effect the economic change will have on the currency, even if its a minute one.
Morgan Stanley thinks that the worst is already behind
Morgan Stanley believes that the worst effects of the pandemic on the U.S. economy are over according to James Gorman, who is the CEO of a prominent American bank.
In June, during a speech at the annual client conference, this time held online, Gorman made the case for continuing to pay dividends by U.S. banks. In Europe, regulators have called on financial institutions to temporarily refuse to pay dividends, and there is growing pressure on U.S. regulators to impose similar restrictions on banks, the Financial Times reported.
Gorman, himself a recent COVID-19, said the unexpected increase in the U.S. suggests that “the worst is behind for the economy and the labour market.”
According to him, Morgan Stanley is already noting the improvement of the situation with overdue loans, and in the second quarter, the bank’s deductions to reserves for possible losses on loans will be less than in the first quarter. In January-March, the bank sent $470 million to these reserves, 1.5 times more than a year earlier.
Gordon Smith, one of JPMorgan Chase’s presidents, said the proportion of late-payments loans was “substantially lower than would be expected at this level of unemployment.”
“I’m more optimistic than pessimistic about the next few quarters,” Smith said, adding that Morgan Stanley would still maintain a “conservative approach” to reserve deductions for possible loan losses.
Improving the overall background justifies further dividend payments by U.S. banks, Gorman said. “We have to pay dividends. I said that from the beginning. We will very easily cover dividend payments this year,” he said.
“What is the reason to demand an end to dividend payments? Yes, retaining more capital is always reasonable, but it is not reasonable if it is done at the expense of shareholders who need these funds,” Gorman said.
In March this year, major U.S. banks voluntarily refused to buy back shares, which spent much more money than on dividends, he said.
During the conference Gorman also noted that the market of mergers and acquisitions is “actually dead” and this situation will continue in the second half of this year. “I’m not worried about that, it’s a cyclical factor and over time the flow of deals will resume,” he said.
How will the situation continue? This is really difficult to predict because the virus is still in our everyday lives and we cannot escape from it, unless the vaccine is created. But some banks including Morgan Stanley are showing really good statistics and it gives us hope that not everything is as bad as it may seem at a first glance.