* Trading clients “re-engage” after Moody’s downgrade-CFO
* Bank still targets market share growth
* Changes value-at-risk formula
By Lauren Tara LaCapra
Oct 18 (Reuters) – Morgan Stanley’s trading business
improved more from increased client activity than asset value
gains in the third quarter as clients returned after the fallout
from the bank’s bond-rating downgrade last summer, Chief
Financial Officer Ruth Porat said on Thursday.
“Clients re-engaged and continued to re-engage throughout
the quarter,” Porat told Reuters in an interview.
The investment bank reported adjusted trading revenue of
$3.6 billion for the third quarter, up 21 percent from a year
earlier. That figure excludes a $2.3 billion accounting charge
to reflect an increase in the value of the bank’s own debt.
Morgan Stanley attributed the gains to better results in
interest rate products and credit products, in its fixed-income
trading business, which was most affected by Moody’s decision to
downgrade the bank’s rating by two notches in July.
Although clients took a “wait-and-see” approach in June
before Moody’s announced its decision, hurting revenue in the
second quarter, they came back to trade with the firm in the
third quarter, Porat said.
Morgan Stanley is still targeting the same market share
growth in its fixed income and commodities trading business, she
said, even though it is exiting certain markets to move toward a
simpler, more automated trading model.
Porat also explained a change in Morgan Stanley’s
value-at-risk model, saying the company is now using a formula
that is weighted toward one-year market volatility rather than
four-year volatility, a move that regulators approved.
Value-at-risk measures how much money a trading firm can
lose on a single trading day. Morgan Stanley’s value-at-risk
last quarter was $63 million, down 36 percent from a year
earlier under its new model. Its previous model showed
value-at-risk of $82 million in the third quarter, down 37
percent.
Overall, Porat said she was pleased with Morgan Stanley’s
performance last quarter in both its trading and wealth
management businesses, though there is still room for
improvement. She expects the wealth management division to meet
its goal of delivering pretax profit margin in the “mid-teens”
range by the middle of next year.
“It’s all going in the right direction and there’s still
some more to do,” Porat said.
(Reporting By Lauren Tara LaCapra; editing by John Wallace)
