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Morgan Stanley (MS) Q3 Earnings Beat, Revenues & Costs Decline

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Morgan Stanley’s (MS - Free Report) third-quarter 2022 adjusted earnings of $1.53 per share surpassed the Zacks Consensus Estimate of $1.51. The bottom line reflects a decline of 25% from the year-ago quarter. Our estimate for earnings was $1.52.

The performance of the investment banking (“IB”) business was not good. Equity underwriting fees decreased 78% from the prior-year quarter and fixed-income underwriting declined 35%. Advisory fees were down 46% year over year. Therefore, IB fees declined 55%.

While an increase in net interest income, driven by a rise in total loan balance (up 16%) and higher interest rates, supported the top line to some extent, a decline in non-interest revenues acted as a headwind.

Nevertheless, as expected, Morgan Stanley’s trading business performed well. While fixed-income trading revenues increased 33% year over year, equity trading income declined 14%.

Operating expenses declined year over year, which was a positive.

Including integration-related expenses for the E*Trade Financial (closed October 2020) and Eaton Vance (closed March 2021) deals, net income applicable to common shareholders was $2.5 billion, down 30% from the year-ago quarter.

Revenues & Expenses Decline

Net revenues were $13 billion, down 12% from the prior-year quarter. The top line marginally missed the Zacks Consensus Estimate of $13.1 billion. Our estimate for revenues was $13.12 billion.

Net interest income was $2.5 billion, up 22% from the year-ago quarter. The upside was largely driven by a 160% rise in interest income.

Total non-interest revenues of $10.5 billion decreased 17% year over year.

Total non-interest expenses were $9.6 billion, down 3% year over year.

Provision for credit losses was $35 million, up 46% from the prior-year quarter.

Quarterly Segmental Performance

Institutional Securities: Pre-tax income was $1.6 billion, down 45% from the prior-year quarter. Net revenues were $5.8 billion, down 22%. The downside resulted from a fall in investment banking revenues, partly offset by higher fixed-income trading revenues.

Wealth Management: The segment includes the results of E*Trade Financial. Pre-tax income totaled $1.6 billion, up 8% year over year. Net revenues were $6.1 billion, up 3% from the prior-year quarter due to higher net interest income.

Total client assets were $4.1 trillion as of Sep 30, 2022, down 11% year over year.

Investment Management: The segment includes the results of Eaton Vance. Pre-tax income was $116 million, falling 69% from the year-ago quarter. Net revenues were $1.2 billion, down 20%. The fall was due to a decline in asset management and related fees.

As of Sep 30, 2022, total assets under management or supervision were $1.3 trillion, down 16% from Sep 30, 2021.

Capital Position Strong

As of Sep 30, 2022, the book value per share was $54.46, down from $54.56 in the corresponding period of 2021. The tangible book value per share was $39.93, down from $40.47 as of Sep 30, 2021.

Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.1% compared with 18.9% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.2%, down from 17.2%.

Capital Deployment Update

In the reported quarter, Morgan Stanley repurchased shares worth $2.6 billion.

Our Take

Elevated expenses due to investments in franchise will likely continue to hurt Morgan Stanley’s profits to some extent in the near term. Uncertainty about the performance of the capital markets makes us apprehensive. Nevertheless, the company’s increased focus on corporate lending will likely keep aiding revenues. Also, higher interest rates are expected to aid net interest income growth.

Morgan Stanley Price, Consensus and EPS Surprise

 

Morgan Stanley Price, Consensus and EPS Surprise

Morgan Stanley price-consensus-eps-surprise-chart | Morgan Stanley Quote

Currently, Morgan Stanley carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Companies

Citizens Financial Group (CFG - Free Report) is slated to report results on Oct 19.

The Zacks Consensus Estimate for Citizens Financial’s third-quarter earnings of $1.22 indicates no change from the prior-year quarter’s reported figure.

Fifth Third Bancorp (FITB - Free Report) is slated to report third-quarter 2022 results on Oct 20.

The Zacks Consensus Estimate for Fifth Third’s third-quarter earnings is pegged at 98 cents, which indicates a 4.3% year-over-year rise.


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