Wall Street titan Morgan Stanley (MS) was the worst-performing U.S. bank stock Tuesday amid a larger market sell-off that weighed heavy on the financial sector. While concerns over political turmoil in Italy dragged on the broader market, bank stocks felt an additional burn on comments by a bank executive who cited a more challenging business environment in the second quarter. (See also: Big Banks Saved $3.6B in Q1 Under Trump Tax Cuts.)
Morgan Stanley's co-head of wealth management, Andy Saperstein, spoke at a New York conference Tuesday suggesting that business for the division, which accounts for approximately half of the firm's revenue, slowed in March and remained slower in April and May. MS traded down 5.7% on Tuesday, marking its sharpest one-day decline in nearly two years, while the broader KBW Bank Index fell 3.9% amid concerns over political uncertainty in Europe, focused around Italy and Spain.
Eurozone Issues Cited
"The more recent bout of political turmoil spanning across a number of member countries coupled with a clear loss of economic momentum in the region has investors questioning the sustainability of the recovery and the future of the bloc," wrote Stifel Nicolaus Chief Economist Lindsey Piegza in an interview with CNBC. America's largest banks have proved vulnerable to similar downturns in the eurozone, such as the 2010 eurozone crisis, wherein Greece was forced to adopt austerity measures to avoid being forced out of the European Union. Italy, the EU's third-largest economy, represents about 15% of the group's total GDP, compared to Greece's 1.2%.
As for Morgan Stanley in particular, Saperstein said that the bank is experiencing "obvious headwinds" in transaction revenue among retail clients, adding that relatively low pricing on fee-based accounts has weighed on results. Accounts are pegged to market prices on the last day of the previous quarter, when the market was booming, noted CNBC. The wealth management executive indicated that Morgan Stanley is expecting to spend more on interest expense than before as it diversifies its deposit sources and decelerates the growth of net interest income.
Trading up about 1.1% on Wednesday morning at $50.52, MS reflects a 3.7% decline year-to-date (YTD) and a 19.5% gain over 12 months, compared to the broader S&P 500's 1.3% return and 12.3% growth over the same respective periods. (See also: JPMorgan Dives Into Crypto Space.)