Growth in Abu Dhabi and Dubai will remain at a sustained level of 3 percent over the next several years if oil prices remain stable, according to Fisch Asset Management.
The growth, however, will remain modest when compared to the 4 percent per annum achieved before 2015.
A report by Independent Credit Review – a subsidiary of Fisch – confirmed Abu Dhabi’s quality rating as AA-, benefiting from comfortable reserves but with a forecast of slightly negative national budgets and rising debt over the next few years.
Dubai, for its part, was upgraded to BBB+, which Fisch said stems from a gradual reduction of total debt, including contingent obligations from state-owned companies from 141 percent in 2013 to 111 percent at the end of 201.
The report noted that VAT will help support the UAE’s fiscal situation in light of lower oil-related activities.
Among the concerns highlighted in the report are Abu Dhabi’s high dependence on oil production and high debt levels of state-owned enterprises and significant investments related to Expo in Dubai.
The report notes that the UAE’s debt position has been gradually defused since the 2008 crisis, primarily due to robust GDP growth over the last few years.
“The United Arab Emirates is seeing a new period of slow and steady economic growth, supported by twin boosters of oil-producing giant Abu Dhabi partnered with Dubai benefitting from many years of efforts towards diversification,” said Philipp Good, CEO and head of portfolio management at Fisch.
“The UAE should certainly prepare against risks, however – for example, Dubai’s tourism and construction industry is strongly dependent on geopolitical stability, and regional, European and international visitors, meaning it will be exposed to any escalation in diplomatic disputes within the GCC or the knock-on effects of Brexit,” he added.
KEF Holdings, a multi-billion dollar Dubai-based conglomerate with strategic investments across various sectors, has named Richard Pattle as its new CEO and board member.
Pattle is will assume his new role in the summer, and will be responsible for the overall management of the business and its various subsidiaries, as well as head global strategic partnerships and investments.
At the moment, Pattle is Vice Chairman of Standard Chartered Private Bank, which he joined in 2014. He was previously Master of the Household for The Prince of Wales and Duchess of Cornwall, and before that served in the British Royal Air Force as a helicopter pilot and in a variety of operational and staff roles.
“I am very pleased that Richard is joining KEF Holdings as CEO and a member of the Board, as we build our businesses in India, the Middle East and beyond,” said KEF founder and chairman Faizal Kottikollon.
“He brings to the role a deep knowledge and understanding of family-owned enterprises, global perspectives, and has a proven track record in leadership which will further enhance the operation of our companies as we build a world class team and expand rapidly.”
Additionally, Kottikollon said that Pattle share’s KEF’s “passion for India, and for creating businesses that have a social impact.”
Pattle’s experience in India includes a year-long exchange posting with the Indian armed forces.
“Much of my initial focus will be directed to operations in India, a country I have grown exceptionally fond of over the last 25 years during my three previous careers,” Pattle said.
“I share Faizal and Shabana’s [Faizal’s wife and KEF vice chairperson] conviction that technology, infrastructure and healthcare are vital to India’s continued success, and I look forward to working with the team at KEF Holdings to help accelerate growth across the country and beyond.”
Abu Dhabi’s retail sector is feeling the pinch of weaker demand levels as consumers have become more prudent with their spending – both from rising cost of living and impacts of the launch of VAT at the start of 2018.
CBRE’s Abu Dhabi Market Overview report said that despite the overall weaker market sentiment, major malls continue to enjoy comparatively strong occupancy and rental levels during the first quarter of this year.
During Q1, prime rents for typical line shops (mall-based) ranged between AED2,500–3,200 per sq m per annum while similar units within off-island locations had rents between AED2,000–3,200 per sq m per annum.
CBRE said that although rental ranges remain wide, average rentals declined by around 8 percent year-on-year, with more severe declines for secondary and tertiary locations.
With retail inventory levels expanding, mall operators are now becoming more open to negotiating with tenants and have become more generous with incentives and contract terms, the report noted.
Analysis of the on-going development pipeline indicates that about 0.29 million sq m of new retail space is expected to be handed over in the Abu Dhabi market during 2018–2020.
Over the next three years, total retail development is expected to reach close to 1.9 million square metres, roughly 18 percent of the existing retail stock.
Almost half of UAE residents are less confident about their financial health than they were 12 months ago, according to a new survey.
The quarterly Consumer Confidence Tracker from yallacompare, the Middle East comparison site, revealed that 42.9 percent of UAE residents are less confident about their financial health, with just 19.3 percent more confident than they were in Q1 2017.
Despite this, only 24.4 percent are more likely to leave the country as a result of their financial health over the last 12 months, and 42.2 percent are less likely to leave the country for the same reason.
This suggests that, while confidence may be falling, UAE expats remain more confident about their prospects in the UAE than in their home countries, the survey said.
The Q1 2018 tracker is based on a survey of 1,441 UAE residents.
“Our Consumer Confidence Tracker shows that, while consumer confidence may not be particularly high right now, UAE residents still see the country as a place of opportunity. What’s more, the tracker shows that, while UAE residents may worry about their prospects, most appear to be taking steps to improve their financial health,” said Jonathan Rawling, CFO of yallacompare.
“A series of indicators on the tracker show a general lack of confidence around job security, the ability to keep up with the cost of living, and the prospect of a salary raise. This means that UAE residents are now allocating their resources differently, based on their confidence levels.”
In terms of the indicators, 37.3 percent said they are worried they will be unable to get by as the cost of living rises, while 53.3 percent are slightly worried. Just 8 percent report to not be worried at all.
UAE consumers are also less confident about keeping their jobs compared to the previous quarter, with 26.9 percent of people worried about job security for the coming 12 months. Year-on-year, 38.3 percent of people feel less secure in their job than they did this time last year.
Slightly fewer people now expect a salary raise in 2018 than in the fourth quarter of 2017 – 60.7 percent compared to 62.3 percent while 15.9 percent expect a pay cut over the next 12 months.
The tracker did reveal, however, that the worst fears around the implementation of VAT have not been realised. Only 12 percent of people feel that the impact of VAT has been such that they’re now struggling to make ends meet. This compares to Q4 2017 – prior to the launch – when 44.6 percent of people were worried that the implementation of VAT.
The survey also suggested that UAE residents are sending less money home than they were last year while nearly 60 percent said they are saving less than they were last year.
For the first quarter of 2018, 42.4 percent claimed to have less credit card debt than they did at the same time last year, and 46.8 percent of people have less loan debt than they did last year.
Elsewhere, of those who pay school fees, 81.6 percent of UAE residents said they have seen an increase in fees and 54.1 percent of parents said they would consider sending their child to a different school in order to save money on fees.
The launch of VAT in the UAE has had little effect on the commercial occupier market in Abu Dhabi, according to a new report.
Knight Frank’s Q1 2018 Abu Dhabi Commercial Market Review said that this is also likely to be the case going forward in the UAE capital’s office market.
The report said that although more than 195,000 square metres of stock is pencilled in to be delivered in Abu Dhabi, in reality around 70,000 sq m is likely to be brought to market with the remainder being delayed to 2019.
Taimur Khan, senior analyst, said: “The vast majority of this new supply is not considered to be prime therefore its impact on the prime market is likely to be limited.”
The report said prime office rents in Q1 registered at AED1,800 per sq m per annum on average, down 1.6 percent compared to the year-earlier period.
Citywide office space witnessed steeper declines in rents of up to 12.9 percent, the report added.
Knight Frank said Abu Dhabi’s GDP decreased by 2.7 percent in the year to Q3 2017. Despite the weaker performance in the oil sector, the non-oil sector has remained resilient.
It added that the short to medium term outlook for Abu Dhabi’s office market remains negative with further falls in rental rates expected over the coming year.
Sony smartphones have sat just below the top tier for a while now, so the new Xperia XZ2 has a lot to prove. At £699 (inc. VAT) it’s more affordable than the £730 Samsung Galaxy S9, but is pipped by the Huawei P20 which is £100 less at £599 (the P20 Pro comes in at £799).
With its emphasis on camera capability, including 4K HDR video recording, and strong audio-visual performance this is arguably a handset aimed more at entertainment than productivity.
Sony’s industrial design has never really appealed to me: the blocky, monolithic appearance of the company’s handsets seemed a bit awkward and characterless, although of course that’s a matter of personal taste and there are doubtless many fans of the traditional Xperia look and feel.
Whatever your own view, that design aesthetic has been shelved, and the Sony Xperia XZ2 is a curvy, shiny, slippery thing. Its glass back is extremely reflective and very smooth to the touch. It isn’t my preferred look — but again, others will like it. The glass feels good in the hand but it attracts finger smears very easily, and I found it slippy to grip, accidentally dropping it back into my bag on a few occasions. Still, if this handset gets dropped in more perilous conditions, its IP68 rating for dust and water resistance should be a comfort.
My blue review sample looked relatively demure — the black variant will share that characteristic, while the silver and pink versions are rather brasher in appearance.
I had a problem locating the fingerprint sensor on the back of the handset: it’s closer to the midway point of the chassis than usual, so that I had to crook my forefinger to find it; it’s also almost flush to the backplate rather than recessed. No doubt I’d get used to the sensor’s position in time, but for something that’s supposed to be intuitive the hassle was a little irritating.
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The Xperia XZ2’s glass back gives it a propensity to slip and slide on smoother surfaces. The back is also curved, which means its long edges are raised quite significantly from a desk’s flat surface. These two factors mean that prodding and poking at the screen can make the phone tip and twist on a desk. It’s the devil’s own job keeping it stationary, and I found this most annoying — in fact, it would be a deal-breaker for me.
Overall this is quite a thick phone too, measuring 11mm thick down its central spine, tapering to 6mm at the edges. It’s 72mm wide and 153mm tall, and weighs 198g.
Sony uses the USB-C slot for audio output rather than providing a 3.5mm jack, but an adapter is provided in the box. One design feature I rather like is access to the SIM tray, which uses a small fingernail-accessible notch in the tray rather than a separate tool. Well done Sony, for finding a design solution that’s obviously more ergonomic than the incumbent option.
The SIM tray has room for either two SIMs or one SIM and a MicroSD card. In general, I’m not in favour of having to sacrifice memory expansion for a second SIM. The Xperia XZ2 has 64GB of internal storage, so users who like to store a lot of content on their handsets may well need to use the MicroSD slot.
The 5.7-inch 1,080-by-2,160 screen has the popular 18:9 format. It extends almost to the very edges on the long sides of the handset, although there’s a bezel of around 10m at the top and 12mm at the bottom. These are thinner than past Sony bezels, but still look like landing strips in comparison to minimal-bezel handsets like Samsung’s Galaxy S9 and S9 Plus.
The screen’s 424ppi pixel density isn’t the highest and it lacks the brilliance of AMOLED displays, but it’s still very good. Video content automatically pops into HDR, which makes for very satisfying viewing. You can tweak the white balance and contrast, selecting presets and making granular adjustments, so there’s scope to get things just how you like them.
The ‘smart backlight’ control keeps the backlight on while you’re looking at the handset, regardless of the sleep settings. There’s also a ‘night light’ mode with reduced blue light. This can come on automatically at a set time, or you can configure it manually. It’s great for late-night ebook readers like me. Neither features are new, but they are both nice to have.
The other side to a great audio visual experience is the audio, and here things are superb: the front-facing stereo speakers deliver good-quality sound, with comparatively rich bass tones for a handset.
Sony adds a third element to the enjoyment of ‘content’ in the shape of its Dynamic Vibration System (DVS). Basically an enhancement of the standard vibration system, DVS can be brought into use when playing games or listening to anything with an audio component. It’s quite weird. Providing feedback by trying to mimic the beat of a tune didn’t work very well: it simply didn’t match the beat of tunes I listened to. The random haptics delivered while I watched a movie were frankly off-putting. I had better luck with gaming, but even there it’s not really a must-have new feature.
Fortunately the volume control provides a slider to change the intensity of DVS — or turn it off completely.
And so we come to the cameras. A dedicated camera button is a rarity on handsets these days, but is something long championed by Sony. It works best when you’re shooting in landscape mode; its location towards the bottom of the right edge in portrait mode is a bit awkward to reach.
Pressing the button starts the camera app, whereupon it becomes the focus and shoot controller — depress it a little way to focus, then all the way to shoot. Annoyingly, the focus point is set in software and you can’t touch the screen to tell the camera where you want to focus.
The single 19MP rear-facing camera uses Sony’s Superior Auto system to identify what kind of scene is being shot, and make settings accordingly. It throws a little icon on-screen towards the bottom left of the framing window, which you can tap to alter white balance and colour saturation if you don’t like the automatic settings. It’s extremely simple to work with, and the end results are pretty good.
The Bokeh effect lets you adjust blurring after shooting, and there’s an AR effect that lets you throw dinosaurs, fairies and facial adornments onto photos; SoundPhoto adds captured sound to a still, plus there’s a panorama shooting mode and an effects mode that offers kaleidoscopic, hand-drawn, fisheye and other imaging distortions.
The ability to record 4K video is welcome, but you’ll need something 4K-capable to review it on and there may be some juddering if you move the camera lens about too much. When you select 4K mode there’s a warning that the camera will shut down if the device temperature rises — a sure sign that this shooting mode really hammers the processor.
Super slow-motion is arguably more fun, capturing Full HD (1080p) resolution at 960fps. The resulting video is smooth and impressive, but clips are very short and I struggle to see how this would be a real boon in any practical situation. Still, this is arguably the bigger win here, not least because it takes just a single screen tap to throw a slow motion episode into a standard-speed recording.
To power all this camera capability, and the rest of what’s on offer here, Sony uses Qualcomm’s latest Snapdragon 845 chipset with 4GB of RAM. I had no complaints at all regarding this setup: the Xperia XZ2 is very responsive. There’s 64GB of internal storage, as noted earlier, of which 15.54GB was used right out of the box.
Sony adds its own software on top of Android 8 Oreo. Sony is a bit heavy-handed with its extras, adding things like its own PlayStation app, music player and image viewing app, as well as a range of third-party apps that, frankly, should be left for the user to install. These include AVG, Kobo, and no fewer than four from Amazon — Shopping, Prime Video, Kindle and Prime Photos. None of these can be uninstalled.
The Xperia XZ2 has a 3,180mAh battery, and it could probably do with something a bit larger. I did manage a day’s usage off a full charge, but on other occasions — when using the camera a lot and that Dynamic Vibration System with some audio and video content — the battery barely got me past the middle of the afternoon.
The handset supports Quick Charge 3.0, which at least means you can boost the battery quickly, and if you invest in the £58 accessory you can take advantage of Qi wireless charging.
The redesigned shape and styling of Sony’s flagship Xperia XZ2 handset will appeal to some, but I found it slippy to hold and prone to wriggling around on the desk. The camera promises much, but it’s tricky to get the most out of 4K video or the super slow-motion mode. The Dynamic Vibration System is something of a mystery to me, and I found it uninspiring. Sony’s insistence on including non-removable third-party apps is irritating. Finally, battery life is underwhelming.
All these factors add up to a handset that seems to promise more than it delivers. Sony won’t be challenging the market leaders with this outing.
Mobile device computing policy (Tech Pro Research) Mobile devices offer convenience and flexibility for the modern workforce–but they also bring associated risks and support issues. This policy establishes guidelines to help ensure safe and productive use of mobile devices by employees, along with recommendations for IT pros responsible for administering and supporting those devices.
WASHINGTON, (Reuters) – “Robust” business borrowing, rising consumer spending, and tight labor markets indicate the U.S. economy remains on track for continued growth, the Federal Reserve reported on Wednesday, with the risks of a global trade war the one big outlier.
FILE PHOTO: Construction is seen in downtown Los Angeles, California U.S. November 28, 2017. REUTERS/Lucy Nicholson
In its periodic “Beige Book” summary of contacts with businesses in its 12 regional districts, the Fed said the overall outlook among businesses “remained positive,” but that many were worried about the Trump administration’s use of tariffs.
“Contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs,” the central bank said in its report, which covered the period from March to early April.
But otherwise the economy appeared to be motoring along, with some evidence that the tax cuts approved in December may have begun filtering through to business spending and investment.
Several Fed districts reported a jump in commercial and industrial lending, from a “robust” 17 percent year-over-year increase in St. Louis to “solid” growth in Atlanta and “healthy” demand in Cleveland.
“Markedly stronger growth in loan volumes was seen in commercial and industrial, and commercial real estate,” the Dallas Fed reported.
The jump in business borrowing could be a precursor to the sort of investment boom that Fed officials hope would follow from the recent steep cut in corporate taxes.
FILE PHOTO: People walk with shopping bags in Manhattan, New York City, U.S. December 27, 2016. REUTERS/Andrew Kelly/File Photo
That would likely support the core view among Fed policymakers for at least two and perhaps three more interest rate increases this year. The Fed raised rates at its March policy meeting but is not expected to do so when it meets again in about two weeks.
Price increases nationally were described as “moderate,” with steel costs rising “dramatically” in some areas due to the Trump administration’s announcement of tariffs on imports of the metal.
Businesses repeated recent frustrations with labor shortages across a variety of sectors including high-skilled jobs in engineering, information technology and health care. There were also shortages seen in construction and transportation.
In some cases that is leading to long-anticipated wage increases, though overall wage growth remained “only modest.”
“Businesses were responding to labor shortages in a variety of ways, from raising pay to enhancing training to increasing their use of overtime and/or automation,” the Fed reported. “Upward wage pressures persisted but generally did not escalate.”
The Beige Book was prepared by the Federal Reserve Bank of Dallas based on information collected on or before April 9, 2018.
Reporting by Howard Schneider Editing by Paul Simao
DUBAI/LONDON (Reuters) – Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to an OPEC supply-cutting deal even though the agreement’s original target is within sight.
A man fixes a sign with OPEC’s logo next to its headquarter’s entrance before a meeting of OPEC oil ministers in Vienna, Austria, November 29, 2017. REUTERS/Heinz-Peter Bader
The Organization of the Petroleum Exporting Countries, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. They have extended the pact until December 2018 and meet in June to review policy.
OPEC is closing in on the original target of the pact – reducing industrialized nations’ oil inventories to their five-year average. There is no indication yet, however, that Saudi Arabia or its allies want to wind down the supply cut.
Over the past year, Saudi Arabia has emerged as OPEC’s leading supporter of measures to boost prices, a change from its more moderate stance in earlier years. Iran, once a keen OPEC price hawk, now wants lower prices than Saudi Arabia.
Industry sources have linked this shift in Saudi Arabia’s stance to its desire to support the valuation of state oil company Aramco ahead of the kingdom’s planned sale of a minority stake in an initial public offering.
The supply cut has helped boost oil prices this year to $73 a barrel, the highest since November 2014. Oil began a slide from above $100 – a price that Saudi Arabia endorsed in 2012 – in mid-2014, when growing supply from rival sources such as U.S. shale began to swamp the market.
But the kingdom wants the rally to go further. Two industry sources said a desired crude price of $80 or even $100 was circulated by senior Saudi officials in closed-door briefings in recent weeks.
“We have come full circle,” a separate high-level industry source said of the change in Saudi thinking. “I would not be surprised if Saudi Arabia wanted oil at $100 until this IPO is out of the way.”
Once the Aramco share sale is done, Riyadh would still want higher prices to help fund initiatives such as Vision 2030, an economic reform plan championed by Crown Prince Mohammed bin Salman.
“Saudi Arabia wants higher oil prices and yes, probably for the IPO, but it isn’t just that,” an OPEC source said.
“Look at the economic reforms and projects they want to do, and the war in Yemen. How are they going to pay for all that? They need higher prices.”
To be sure, OPEC and Saudi Arabia have no official price target and say the objective of the production cut is to balance supply and demand, and reduce the inventory glut.
But guidance on preferred price levels comes from officials speaking off the record, and from industry sources who have discussed the issue with Saudi officials.
“I personally think that now $70 is the floor for oil prices,” a second OPEC source said. “But OPEC is unlikely to make any changes in June, maybe by the end of the year. The market still needs support.”
TALKS IN JEDDAH
OPEC and its partners meet on June 22 to review policy and before then a ministerial monitoring panel gathers in Jeddah, Saudi Arabia, on April 20.
By OPEC’s parameters, the deal has worked. Oil stocks in developed economies in February stood a mere 43 million barrels above the latest five-year average, down from 340 million barrels above in January 2017.
The cuts have been even bigger than those specified in the deal, thanks in part to a slide in Venezuelan production due to an economic crisis in the South American country.
Compliance has reached 150 percent, according to OPEC, meaning the organization’s members have cut production by about 1.8 million barrels per day, 600,000 bpd more than pledged.
Few OPEC sources call for an exit strategy. Most officials are talking of introducing additional inventory metrics to assess the success of the deal, and of a need to support investment in new production to avert any supply crunch.
The impression is that oil prices are seen as not yet high enough to encourage sufficient oil investment.
“We will know what will be the good price when the market is balanced and we have enough investments,” the United Arab Emirates’ energy minister, Suhail al-Mazroui, told Reuters last week. “We need to have more investments coming.”
The Jeddah meeting of the Joint Ministerial Monitoring Committee is unlikely to change the parameters for assessing the deal’s success, Mazroui and other OPEC officials said, and sources see little chance of a major tweak in June.
“Even if we reach the five-year average before June, it does not mean we just go and open the taps,” a third OPEC source said. “We have to test it.”
WASHINGTON (Reuters) – Time Warner (TWX.N) Chief Executive Jeff Bewkes on Wednesday defended his company’s planned merger with ATT (T.N) as necessary to compete effectively for advertising with internet giants like Google and Facebook.
FILE PHOTO: Time Warner CEO Jeff Bewkes arrives ahead of arguments in the trial to determine if ATT’s merger with Time Warner is legal under antitrust law at U.S. District Court in Washington, U.S., March 22, 2018. REUTERS/Aaron P. Bernstein
Bewkes told Judge Richard Leon, who will decide if the $84.5 billion deal may go forward, that the Justice Department was wrong to say a merger would allow Time Warner to push for blackouts in negotiations with pay TV operators who wanted to show their content in order to allow ATT subsidiary DirecTV to pick up more customers.
“I think it’s ridiculous,” said Bewkes, who has been CEO for more than 10 years. “If our channels are not in distribution we lose lots of money (from subscriptions and advertising).”
He said that “1 percent, less than 1 percent, maybe 2 percent” of subscribers would drop their pay TV subscription because of a blackout, far below the 12 percent estimated by an economist for the government who testified earlier in the trial.
He argued it was in Time Warner’s best interest financially to license its television channels, which range from movies to CNN to sports, broadly online.
Bewkes explained how Time Warner has been hampered in innovating and advertising because it does not have the granular information about viewers that pay TV and internet companies have.
With digital advertising, Chevrolet, for example, can target car ads at people looking to actually buy a car, he said.
ATT has said a key benefit of owning Time Warner, whose networks include CNN and TBS, is that it can take data about its 141 million U.S. wireless subscribers and 25 million video subscribers and marry it with Time Warner’s programming to enable advertisers to target TV ads.
Targeted TV ads, also known as addressable TV, have yet to go mainstream because they involve renegotiating carriage deals with programmers and distributors, said Brian Wieser, an analyst at Pivotal Research.
Targeted TV represents more than $100 billion in revenue by 2030 for companies that offer it, according to an April Credit Suisse report, which called it “a largely overlooked benefit of the ATT/Time Warner transaction.” The ads can also be sold at triple the price of regular ads.
“The Google/Facebook duopoly has such a strong hold on the market, I think it’s important that there is healthy competition and that we aren’t just forced to invest in two places,” said Tim Villanueva, head of media strategy for Fetch, an ad agency focused on mobile, whose clients include eBay and Lululemon. He said he was interested in using the new platform.
U.S. advertisers are expected to spend $60.9 billion this year on Facebook and Google, an 86 percent increase from the $32.8 billion they spent three years ago, according to research firm eMarketer.
Meanwhile advertisers’ spending on TV ads is expected to be $69.9 billion, a 1.45 percent increase from three years ago.
The trial has seen a parade of witnesses testifying about how the merger would affect them. Executives from smaller pay TV companies talked about how important it was to have access to Time Warner’s movies and television shows.
Both the Justice Department and ATT called on economists to defend their points of view.
Among them were Carl Shapiro of the University of California at Berkeley, who said the $84.5 billion deal would cost American consumers some $286 annually in higher prices, while Dennis Carlton, from the University of Chicago, said it would mean a benefit of 52 cents per month to every pay TV subscriber.
The trial, which began in mid-March in U.S. District Court in Washington, is expected to wrap up this month.
Reporting by Diane Bartz; Additional reporting by Jessica Toonkel; Editing by Bernadette Baum
(Reuters) – Morgan Stanley (MS.N) reported record first-quarter profit on Wednesday thanks to a surge in trading activity, much like other Wall Street banks, but executives warned results through the rest of the year may not be quite as strong.
Capital markets flourished during the first few months of 2018 as major economies expanded around the globe and U.S. interest rates rose, with bouts of volatility proving generally positive for trading.
As investors flocked to stock, bond, commodity and currency markets to adjust their portfolios, Morgan Stanley’s broader institutional securities business reported its best results since 2007.
Trading revenue soared 26 percent to $4.4 billion, topping Morgan Stanley’s chief rival, Goldman Sachs Group Inc (GS.N), in dollar terms.
However, the early days of the second quarter have been defined more by geopolitical tensions, trade conflicts and debates about the direction of yields, Chief Financial Officer Jonathan Pruzan said in an interview. That bodes less well for trading revenue, especially since the first quarter is seasonally the strongest.
“If Morgan Stanley’s strategy could be defined simply, it would be that we will do fine when the markets are tough and we would do well when the markets are good,” Chief Executive Officer James Gorman said on a call with analysts.
“There are others who might do better when the markets are good. That’s fine. What I care about is how we do when the markets are tough.”
Morgan Stanley can generate at least $7.5 billion in revenue in a worst-case scenario, Gorman said, thanks to steps he has taken to grow more consistent income streams, like wealth management.
Morgan Stanley profit helped by ‘flattering factors’ that may not last: CFO
Overall, Morgan Stanley’s quarterly profit rose 40 percent year-over-year to $2.6 billion, or $1.45 per share, easily topping analysts’ average estimate of $1.25 per share, according to Thomson Reuters I/B/E/S.
Total revenue rose 14 percent to $11.1 billion.
Analysts were generally positive on the results. In a report titled “Firing on All Cylinders,” Oppenheimer analyst Chris Kotowski said Morgan Stanley had beat estimates in nearly all of its businesses.
Morgan Stanley shares rose 0.8 percent to $53.65 in morning trading.
Its report followed similarly sunny earnings from JPMorgan Chase Co (JPM.N), Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Goldman Sachs.
Unlike Morgan Stanley’s Pruzan, Goldman’s finance chief had said he believed the market trends that led to the blockbuster quarter were sustainable.
Slideshow (2 Images)
HIGHER TARGETS AHEAD?
Gorman, 59, joined Morgan Stanley in 2006 as head of wealth management. He became CEO in 2010, as the bank was still reeling from the financial crisis.
His tenure has been defined by reducing risk, exiting problematic businesses and emphasizing steadier ones that can generate reliable revenue.
During the call, Gorman made frequent references to how far Morgan Stanley has come since he took the helm, calling it a “different planet now.”
He noted that when he joined, the bank’s wealth business generated $1.25 million in quarterly revenue, a tiny fraction of the $4.4 billion it printed last quarter.
Overall, Morgan Stanley had been generating returns-on-equity of just 2 percent or so, compared with the annualized return of 14.9 percent last quarter.
That means it is well above the 10 percent minimum investors generally like to see, above the 10 percent to 13 percent target range Gorman set a few months ago, and close to Goldman Sachs, which reported a 15.4 percent return-on-equity in the first quarter.
Asked by analysts whether the target should be raised, Gorman said it would be “silly” to change so quickly, but that he would re-evaluate if Morgan Stanley generates returns above that range through the rest of the year.
“Philosophically, the target range is supposed to represent a normal set of outcomes under kind of tough market environment and a good market environment,” he said. “This was a very good market environment.”
Reporting By Aparajita Saxena in Bengaluru and Lauren Tara LaCapra in New York; Editing by Anil D’Silva and Meredith Mazzilli