Global Courant 2023-04-19 22:28:50
James Gorman, CEO of Morgan Stanley, participates in a conversation-style interview with the Economic Club of Washington in Washington, September 18, 2013.
Yuri Gripas | Reuters
Morgan Stanley on Wednesday beat estimates for first-quarter profit and revenue on better-than-expected trading results.
Here’s how the company did it:
Earnings of $1.70 per share, vs. $1.62 Refinitiv estimate Revenue of $14.52 billion, vs. $13.92 billion estimate.
The New York-based bank said earnings fell 19% to $2.98 billion, or $1.70 per share, from a year earlier due to declines in investment banking and trading. Company-wide revenue fell 2% to $14.52 billion.
As revenue declined, costs at the bank rose 4% to $10.52 billion, fueled primarily by higher-than-expected compensation costs. Spending was $430 million higher than StreetAccount’s estimate.
Higher costs contributed to the profit margins of the bank’s wealth division and investment bank, analyst Mike Mayo of Wells Fargo said in a research note. He also said the bank would have earned $1.64 per share if the benefit of a low tax rate was discounted.
Shares of Morgan Stanley were up less than 1% in afternoon trading after falling as much as 4% during premarket action.
Under CEO James Gorman, Morgan Stanley has become an asset management giant through a series of acquisitions. The bank derives most of its income from wealth and investment management, more stable businesses that help offset volatile trading and banking results.
“The investments we’ve made in our asset management business continue to pay off as we added a robust $110 billion in net new assets this quarter,” Gorman said in a press release. “Income from equities and fixed income was strong, although investment banking remained subdued.”
Asset management revenues were up 11% over the same period last year to $6.56 billion, in line with StreetAccount’s estimate. The increase was fueled by an increase in net interest income combined with higher interest rates and credit growth, which offset lower asset management income as markets fell.
First-quarter trading income fell from a year ago as Wall Street bounced back from a Covid-era boom, but Morgan Stanley traders managed to beat expectations by about $250 million.
The bank’s fixed income traders produced $2.58 billion in revenue, surpassing the StreetAccount estimate of $2.33 billion. Equity trading income of $2.73 billion surpassed the $2.65 billion estimate.
Investment banking revenues fell 24% to $1.25 billion on fewer completed M&A deals and lower equity and debt issues, beating the $1.2 billion estimate.
Finally, the bank’s smallest business, asset management, saw revenue fall 3% to $1.29 billion, just short of the $1.34 billion estimate, as management fees fell in declining markets.
Early on a conference call with analysts, Gorman spoke about the turmoil created by the collapse of two US regional banks in March.
“In my view, we are not in a banking crisis, but we have had a crisis and may still have in some banks,” Gorman said. “I don’t consider the condition remotely comparable to 2008.”
He added that there was “no doubt” that Morgan Stanley would acquire more asset management companies, although nothing was imminent.
Morgan Stanley shares are up 5.7% this year before Wednesday, better than the 16% drop in the KBW Bank index.
JPMorgan Chase, Citi group, Wells Fargo And bank of America each beat expectations as the companies reaped more interest income amid rising interest rates. Goldman Sachs missed costs associated with paying off consumer loans amid its pivot away from retail banking.
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