Kristian Rouz – In line with earlier projections, disappointing Q3 earnings season have further decimated the US-based multinationals’ profits from overseas operations as a stronger dollar and mediocre global growth offer less return on capital investment, trade in goods and services.
Meanwhile, in the wake of the non-financial prosperity at home, underlined by US GDP growth figures, many investors are considering more profitable opportunities outside of international finance, thus pushing America’s corporations to readjust their activities to the domestic market.
Among the reasons for their deteriorating financial performance was investors exiting most international bond markets, selloffs in many emerging markets currencies, and the persisting depression in commodities.
The US Federal Reserve’s reluctance or inability to provide clearer rate hike timing guidelines to the market and mainland China’s turbulence have also taken their toll on Morgan Stanley’s returns from international operations.
On Monday, Morgan Stanley reported a decline in trading revenues by 17.2% to only $2.03 bln in Q3, while the bank’s shareholders profits crashed by 42.4%.
Morgan Stanley was the last major US bank to report during this ongoing earnings season, adding further gloom to investors’ perception of international trade as not as profitable as it once used to be for the US-based corporations. The news created shockwaves on Wall Street, with Morgan Stanley’s shares dropping 5.8% and US stock index futures slumping overnight.
Along with Morgan Stanley, such US financial giants as Citigroup, Bank of America, Goldman Sahcs and JPMorgan Chase & Co. all reported murky results from international trade.
Only Wells Fargo posted positive dynamics in quarterly revenue – only because the lion’s share of this particular bank’s activities are based in the domestic US market. Thus, the negative international outlook for the US-based financial enterprises strengthens the tendency of the US businesses’ withdrawal from overseas markets to seek opportunities in the growing US economy.
"The volatility in global markets in the third-quarter led to a difficult environment, impacting in particular our fixed income business and our Asia merchant banking business," Morgan Stanley Chief Executive James Gorman commented on the issue.
Morgan Stanley shares dropped 19% in Q3, bucking a downward trend the US financials were exposed to international mess. As the US is growing increasingly isolationist in regard to economic development, the only profitable operations of the American financial corporation are those based in the US. In case of Morgan Stanley, its retail brokerage unit is playing an increasingly important role now, and especially so as the fourth quarter forecasts promise the international spillovers will only exacerbate.
As Q3 US earnings season is going full-force, with only 20% of S&P 500-listed companies having reported thus far, the broader satiation is not quite as grim.
However, revenues of the US-based businesses are indeed in dire straits, undershooting forecasts by 0.3% so far as a stronger dollar and cheap oil are weighing on their financial performance.
Meanwhile, US investor mastermind and Berkshire Hathaway CEO Warren Buffett has been continuously increasing his presence in US domestic real estate assets, infrastructure and energy, whilst more often than not ignoring any overseas opportunities.
Another prominent investor and financial world activist, Carl Icahn, recently spoke out on the possible financial hazards ahead, stressing that even the current grim earnings figures are an optimistic mirage fueled by an ultra-accommodative monetary policy.
Whilst earnings statistics do not include several important parameters including stock compensation, restructuring and takeover costs, among others, the current negative tendencies in US companies’ international operations are actually more acute.
“The earnings that are being put out today, I think they’re very suspect,” Icahn said.
In such international environment, US companies struggling for cost-efficiency and investment appeal will ultimately have to leave overseas markets, focusing on domestic competition. As corporate America returns home, the combination of negative global and positive domestic trends create vast prerequisite for the coming new era of the US isolationism – the first time since the 1920s.
