Tags: Morgan Stanley | bonds | investing | bank

Morgan Stanley Says It Will Cut Money-Losing Fixed-Income Assets

Tuesday, 09 Sep 2014 04:03 PM

Morgan Stanley, which has pledged to shrink its fixed-income trading unit, said it can cut $25 billion of risk-weighted assets that are losing money in that business even after it reaches its size target.

The bank won’t hit a “brick wall” once it reduces risk-weighted assets to $180 billion from the $192 billion it had at the end of June, Chief Financial Officer Ruth Porat said Tuesday at an investor conference in New York. The firm will let the $25 billion of RWAs roll off and may replace them with other assets that earn a return of more than 10 percent, she said.

Morgan Stanley is seeking to boost the return on equity in its fixed-income trading business as the firm’s profitability trails competitors. While Chief Executive Officer James Gorman, 56, has cut the amount of capital used by the fixed-income unit by about half over the past three years, the firm’s ROE was about 8 percent in the first half, below his goal of 10 percent.

The $25 billion of risk-weighted assets are primarily structured-credit products and “long-dated” uncollateralized derivatives, Porat said. The reduction will mostly come from passive roll downs and the offsetting growth may be in corporate credit and securitized-products trading, she said.

“We have a number of franchises within fixed income where there is an opportunity to continue to place capital and support client activity where we’re already generating an attractive return,” Porat said.

Morgan Stanley is reducing its balance sheet in interest rates and currency trading, and reshaping its commodities business to look more like it did in the 1990s, after those units produced returns on equity of less than 5 percent last year, Porat said. The firm’s credit and securitized-products divisions each produced ROEs of more than 15 percent, she said.

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Morgan Stanley, which has pledged to shrink its fixed-income trading unit, said it can cut $25 billion of risk-weighted assets that are losing money in that business even after it reaches its size target.
Morgan Stanley, bonds, investing, bank
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2014-03-09
Tuesday, 09 Sep 2014 04:03 PM
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