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Morgan Stanley (MS) Gains on Q4 Earnings Beat, Revenues Dip Y/Y
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Morgan Stanley’s (MS - Free Report) fourth-quarter 2022 adjusted earnings of $1.31 per share surpassed the Zacks Consensus Estimate of $1.25. The bottom line reflects a decline of 37% from the year-ago quarter. Our estimate for earnings was $1.30.
Shares of MS gained 1.3% in pre-market trading on better-than-expected earnings. However, the full-day trading session will display a clearer picture.
The performance of the investment banking (“IB”) business was not good. Equity underwriting fees decreased 73% from the prior-year quarter and fixed-income underwriting declined 38%. Advisory fees were down 34% year over year. Therefore, IB fees declined 49%.
While an increase in net interest income, driven by a rise in total loan balance (up 11%) 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 15% year over year, equity trading income declined 24%.
Operating expenses increased year over year, which was a negative.
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 (GAAP basis) was $2.11 billion, down 41% from the year-ago quarter. Our estimate for the metric was $2.07 billion.
The fourth quarter of 2022 was also impacted by severance costs associated with a December employee action, partially offset by a net discrete tax benefit.
For 2022, adjusted earnings of $6.36 per share surpassed the Zacks Consensus Estimate of $6.30. The bottom line reflects a decline of 23% from the year-ago period. Our estimate for earnings was $6.33. Full-year net income applicable to common shareholders (GAAP basis) was $10.54 billion, down 28% from the year-ago period. Our estimate for the metric was $10.50 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $12.75 billion, down 12% from the prior-year quarter. The top line surpassed the Zacks Consensus Estimate of $12.16 billion. Our estimate for revenues was $11.69 billion.
For 2022, net revenues were $53.67 billion, down 10% from the prior year. The top line beat the Zacks Consensus Estimate of $53.08 billion. Our estimate for 2022 revenues was $52.61 billion.
Quarterly net interest income was $2.32 billion, up 11% from the year-ago quarter. The upside was largely driven by a rise in interest income, partly offset by higher interest expenses. We had projected a NII of $2.52 billion for the fourth quarter.
Total non-interest revenues of $10.43 billion decreased 16% year over year. Our estimate for the metric was $9.18 billion.
Total non-interest expenses were $9.87 billion, up 2% year over year. Our estimate for expenses was $8.73 billion.
Provision for credit losses was $87 million in the fourth quarter, up significantly from $5 million recorded in the prior-year quarter. We had projected provisions of $42.6 million.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income was $748 million, down 75% from the prior-year quarter. Our estimate for the same was $1.21 billion. Net revenues were $4.8 billion, down 28% year over year. We had projected total revenues of $4.94 billion. 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 $1.84 billion, up 30% year over year. Our estimate for the same was $1.50 billion. Net revenues were $6.63 billion, up 6% from the prior-year quarter due to higher net interest income and other income. We had projected total revenues of $5.67 billion.
Total client assets were $4.19 trillion as of Dec 31, 2022, down 16% year over year. Our estimate for the same was $4.29 trillion.
Investment Management: The segment includes the results of Eaton Vance. Pre-tax income was $214 million, falling 58% from the year-ago quarter. Our estimate for the same was $219.7 million. Net revenues were $1.46 billion, down 17% year over year. The fall was due to a decline in asset management and related fees, and performance-based income and other income. We had projected total revenues of $1.19 billion.
As of Dec 31, 2022, total assets under management or supervision were $1.31 trillion, down 17% from Dec 31, 2021.
Capital Position Strong
As of Dec 31, 2022, the book value per share was $54.55, down from $55.12 in the corresponding period of 2021. The tangible book value per share was $40.06, down from $40.91 as of Dec 31, 2021.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.5% compared with 19.1% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.6%, down from 17.4% a year ago.
Capital Deployment Update
In the reported quarter, Morgan Stanley repurchased shares worth $1.7 billion. In 2022, it repurchased $9.9 billion worth of shares.
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.
Bank of New York Mellon Corporation’s (BK - Free Report) fourth-quarter 2022 adjusted earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.22. The bottom line reflects a rise of 25% from the prior-year quarter. Our estimate for earnings was $1.09.
BK’s results were aided by a rise in net interest revenues. However, asset balances witnessed a decline, which was a negative. Higher expenses and lower fee revenues hurt BK’s results to some extent.
Higher loan balance, rising rates and solid market performance drove JPMorgan’s (JPM - Free Report) fourth-quarter 2022 adjusted earnings of $3.56 per share, which surpassed the Zacks Consensus Estimate of $3.11. Results excluded gains from the sale of Visa B shares and net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.
As expected, the performance of JPM’s investment banking business was hugely disappointing. Further, mortgage fees and related income declined 69% as mortgage rates remained above the 6% mark in the fourth quarter. Then again, higher interest rates and a solid rise in loan balance aided JPMorgan’s net interest income.
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Morgan Stanley (MS) Gains on Q4 Earnings Beat, Revenues Dip Y/Y
Morgan Stanley’s (MS - Free Report) fourth-quarter 2022 adjusted earnings of $1.31 per share surpassed the Zacks Consensus Estimate of $1.25. The bottom line reflects a decline of 37% from the year-ago quarter. Our estimate for earnings was $1.30.
Shares of MS gained 1.3% in pre-market trading on better-than-expected earnings. However, the full-day trading session will display a clearer picture.
The performance of the investment banking (“IB”) business was not good. Equity underwriting fees decreased 73% from the prior-year quarter and fixed-income underwriting declined 38%. Advisory fees were down 34% year over year. Therefore, IB fees declined 49%.
While an increase in net interest income, driven by a rise in total loan balance (up 11%) 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 15% year over year, equity trading income declined 24%.
Operating expenses increased year over year, which was a negative.
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 (GAAP basis) was $2.11 billion, down 41% from the year-ago quarter. Our estimate for the metric was $2.07 billion.
The fourth quarter of 2022 was also impacted by severance costs associated with a December employee action, partially offset by a net discrete tax benefit.
For 2022, adjusted earnings of $6.36 per share surpassed the Zacks Consensus Estimate of $6.30. The bottom line reflects a decline of 23% from the year-ago period. Our estimate for earnings was $6.33. Full-year net income applicable to common shareholders (GAAP basis) was $10.54 billion, down 28% from the year-ago period. Our estimate for the metric was $10.50 billion.
Revenues Decline, Expenses Rise
Quarterly net revenues were $12.75 billion, down 12% from the prior-year quarter. The top line surpassed the Zacks Consensus Estimate of $12.16 billion. Our estimate for revenues was $11.69 billion.
For 2022, net revenues were $53.67 billion, down 10% from the prior year. The top line beat the Zacks Consensus Estimate of $53.08 billion. Our estimate for 2022 revenues was $52.61 billion.
Quarterly net interest income was $2.32 billion, up 11% from the year-ago quarter. The upside was largely driven by a rise in interest income, partly offset by higher interest expenses. We had projected a NII of $2.52 billion for the fourth quarter.
Total non-interest revenues of $10.43 billion decreased 16% year over year. Our estimate for the metric was $9.18 billion.
Total non-interest expenses were $9.87 billion, up 2% year over year. Our estimate for expenses was $8.73 billion.
Provision for credit losses was $87 million in the fourth quarter, up significantly from $5 million recorded in the prior-year quarter. We had projected provisions of $42.6 million.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income was $748 million, down 75% from the prior-year quarter. Our estimate for the same was $1.21 billion. Net revenues were $4.8 billion, down 28% year over year. We had projected total revenues of $4.94 billion. 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 $1.84 billion, up 30% year over year. Our estimate for the same was $1.50 billion. Net revenues were $6.63 billion, up 6% from the prior-year quarter due to higher net interest income and other income. We had projected total revenues of $5.67 billion.
Total client assets were $4.19 trillion as of Dec 31, 2022, down 16% year over year. Our estimate for the same was $4.29 trillion.
Investment Management: The segment includes the results of Eaton Vance. Pre-tax income was $214 million, falling 58% from the year-ago quarter. Our estimate for the same was $219.7 million. Net revenues were $1.46 billion, down 17% year over year. The fall was due to a decline in asset management and related fees, and performance-based income and other income. We had projected total revenues of $1.19 billion.
As of Dec 31, 2022, total assets under management or supervision were $1.31 trillion, down 17% from Dec 31, 2021.
Capital Position Strong
As of Dec 31, 2022, the book value per share was $54.55, down from $55.12 in the corresponding period of 2021. The tangible book value per share was $40.06, down from $40.91 as of Dec 31, 2021.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.5% compared with 19.1% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.6%, down from 17.4% a year ago.
Capital Deployment Update
In the reported quarter, Morgan Stanley repurchased shares worth $1.7 billion. In 2022, it repurchased $9.9 billion worth of shares.
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-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.
Performance of Other Banks
Bank of New York Mellon Corporation’s (BK - Free Report) fourth-quarter 2022 adjusted earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.22. The bottom line reflects a rise of 25% from the prior-year quarter. Our estimate for earnings was $1.09.
BK’s results were aided by a rise in net interest revenues. However, asset balances witnessed a decline, which was a negative. Higher expenses and lower fee revenues hurt BK’s results to some extent.
Higher loan balance, rising rates and solid market performance drove JPMorgan’s (JPM - Free Report) fourth-quarter 2022 adjusted earnings of $3.56 per share, which surpassed the Zacks Consensus Estimate of $3.11. Results excluded gains from the sale of Visa B shares and net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.
As expected, the performance of JPM’s investment banking business was hugely disappointing. Further, mortgage fees and related income declined 69% as mortgage rates remained above the 6% mark in the fourth quarter. Then again, higher interest rates and a solid rise in loan balance aided JPMorgan’s net interest income.