After COVID shutdown the economy, the government began to use its leverage to ensure the economy still functioned. At first it was going to be a 3 month operation because many believed by the summer, most businesses would return to what was normal. As time went on, the length of time that many industries which require crowds and very hard to social distance, they were going to be shut down for longer periods of time, governments had to do more. The federal reserve besides telling the world interest rates were going to stay low for an extended period of time, the bank bought government and corporate bonds. The buying of the corporate bonds sent a very clear signal for companies to issue bonds because the bank was a buyer and as a result billions of bonds have been issued. Every time the bonds are issued, Wall Street firms make a large commission or large fees.
In an article by Elizabeth Dilts and Mashall Nivedita, one of the banks which has more of its operations selling stocks and bonds is Morgan Stanley. The company reported a record quarterly profit that benefited from huge swings in financial markets. Similar results was posted by Goldman Sachs.
Morgan Stanley CEO James Gorman noted record profits are wonderful but they are very hard to repeat in the coming quarters. Over the past decade, Morgan Stanley has gone from a pure trading company to one which expanded into wealth and asset management which means a greater diversified revenue stream. With asset management, there should be reasonably consistent revenue whether the markets go up or down. Morgan Stanley has a relative small consumer loan division, more to be involved but not large enough to take write downs. With the big banks were setting aside billions in loan reserve, Morgan Stanley set aside $239 million.
Linking to dividend paying stocks, in every industry some companies benefit more from the ebbs and flows of the economy than others. Morgan Stanley has benefited from the trading volumes and larger asset management revenue streams. Banks with thousands of loans to small and medium sized businesses that are closed for months are not benefiting, they are still doing okay, but not benefiting. As the economy changes, examine your portfolio how does the company make money and does it benefit from the existing economic conditions or when would it change?
There are more questions than answers, till the next time – to raising questions.