Morgan Stanley’s fixed-income trading unit offers opportunities on its own merits and isn’t being propped up by more profitable businesses, Chief Financial Officer Ruth Porat said.
“We are not looking at fixed-income as being subsidized by the other businesses, we look at it as a strong business on its own, one that is supportive of the balance of the firm,” Porat, 56, said on a conference call with bond investors today.
Chief Executive Officer James Gorman has set goals for reducing the amount of capital the fixed-income unit requires and boosting its return on equity to 10 percent, which the New York-based firm has said is its cost of equity. Bond-trading revenue dropped in each of the last four years, raising questions about whether Gorman, 55, should shrink the business further.
Many products within fixed-income are already exceeding the 10 percent ROE target, and the overall business can surpass that level eventually, Porat said. The bank boosted its ROE within currency trading to around 10 percent last year and plans to do the same with the interest-rates unit next, she said. Return on equity is a gauge of profitability that measures how well a company reinvests earnings.
“It’s an ROE opportunity for the firm,” Porat said. “We want to take it from where we are today to hit our cost of capital, but I don’t mean to imply that that’s an endpoint.”