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Morgan Stanley (MS) Tops Q2 Earnings, Advisory Fees Rise
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Improved advisory fees and efficient cost control drove Morgan Stanley’s (MS - Free Report) second-quarter 2016 earnings from continuing operations of 75 cents per share, which handily outpaced the Zacks Consensus Estimate of 60 cents. However, this shows a 5% decline from the prior-year quarter, which excludes DVA.
Shares of Morgan Stanley gained more than 3% in early market trading, implying a positive market reaction to the earnings beat. However, as the challenging operating backdrop persisted, the company’s top line witnessed a decline. Hence, the stock’s price performance after the full day’s trading will give a better indication about the investors’ sentiments.
Prudent cost management was one of the driving factors behind the earnings beat. However, though the quarter witnessed improvement in net interest income and advisory fees, it wasn’t sufficient to ward-off trading weakness that largely led to the revenue fall.
Morgan Stanley recorded lower fixed-income, currency and commodities (“FICC”) trading income in this quarter as well. Further, equity trading and underwriting income depicted weakness.
Net income applicable to Morgan Stanley was $1.58 billion, down 12% year over year.
Revenue Decline Offset by Lower Costs
Net revenue amounted to $8.91 billion, a decrease of 9% from the prior-year quarter. However, it surpassed the Zacks Consensus Estimate of $8.34 billion.
Net interest income was $913 million, up 31% from the year-ago quarter. This was driven by a 10% fall in interest expenses and 20% growth in interest income. Meanwhile, total non-interest revenue of $8 billion fell 12% year over year, as all components witnessed deterioration.
Total non-interest expenses were $6.43 billion, down 8% year over year. The fall is attributable to an 8% decline in non-compensation expenses and a 9% reduction in compensation and benefits.
Quarterly Segmental Performance
Institutional Securities (IS): Pre-tax income from continuing operations was $1.51 billion, down 7% year over year. Net revenue was $4.58 billion, a decline of 11% from the year-ago quarter. The fall was primarily due to lower FICC income, underwriting fees, and equity sales and trading net revenues partly offset by higher advisory revenues.
Wealth Management (WM): Pre-tax income from continuing operations totaled $859 million, a dip of 3% on a year over year basis. Net revenue was $3.81 billion, down 2% year over year, due to a fall in transactional revenues and asset management fee revenue. These were, nevertheless, partially offset by a rise in net interest income.
Investment Management (IM): Pre-tax income from continuing operations was $118 million, down 46% from the year-ago quarter. Net revenue was $583 million, a fall of 22% year over year. The decrease reflected lower investment gains and carried interest in infrastructure and private equity investments.
As of Jun 30, 2016, total assets under management or supervision were $406 billion, up 1% on a year over year basis.
Strong Capital Position
As of Jun 30, 2016, book value per share was $36.29, up from $34.52 as of Jun 30, 2015. Tangible book value per share was $31.39, up from $29.54 as of Jun 30, 2015.
Morgan Stanley’s Tier 1 capital ratio Advanced (Transitional) was 18.8% versus 15.7% in the year-ago quarter and Tier 1 common equity ratio Advanced (Transitional) was 16.9% versus 14.0% in the prior-year quarter.
Share Repurchases
During the reported quarter, Morgan Stanley bought back around 23 million shares for nearly $625 million. This was part of the share buyback program announced by the company, under which shares worth up to $3.1 billion can be repurchased through the second quarter of 2016.
Further, Morgan Stanley announced a new share repurchase plan of up to $3.5 billion shares beginning third quarter of 2016 through the end of second quarter of 2017. This is part of the company’s 2016 capital plan that was approved by the Fed last month.
Dividend Hike
Concurrent with the earnings release, Morgan Stanley declared 20 cents per share quarterly dividend, representing 33% increase from the prior payout. The dividend will be paid on Aug 15, to shareholders of record as on Jul 29.
Our Take
Continued tough operating environment led to a substantial decline in the top line. Though interest income showed improvement, a slump in trading activities drove the results down. Also, stringent capital norms may somewhat reduce the company’s flexibility with respect to its investments and lending volumes.
Nonetheless, Morgan Stanley’s initiatives to offload its non-core assets in order to lower balance-sheet risks and shift focus toward less capital-incentive IM and WM segments are commendable. Also, a full control of Morgan Stanley Wealth Management joint venture continues to aid the diversification of the company’s revenue base.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
Among other banking giants, JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corp. (BAC - Free Report) and Citigroup Inc. (C - Free Report) already have come out with their second-quarter results. The performances of these companies have been encouraging.
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Morgan Stanley (MS) Tops Q2 Earnings, Advisory Fees Rise
Improved advisory fees and efficient cost control drove Morgan Stanley’s (MS - Free Report) second-quarter 2016 earnings from continuing operations of 75 cents per share, which handily outpaced the Zacks Consensus Estimate of 60 cents. However, this shows a 5% decline from the prior-year quarter, which excludes DVA.
Shares of Morgan Stanley gained more than 3% in early market trading, implying a positive market reaction to the earnings beat. However, as the challenging operating backdrop persisted, the company’s top line witnessed a decline. Hence, the stock’s price performance after the full day’s trading will give a better indication about the investors’ sentiments.
Prudent cost management was one of the driving factors behind the earnings beat. However, though the quarter witnessed improvement in net interest income and advisory fees, it wasn’t sufficient to ward-off trading weakness that largely led to the revenue fall.
Morgan Stanley recorded lower fixed-income, currency and commodities (“FICC”) trading income in this quarter as well. Further, equity trading and underwriting income depicted weakness.
Net income applicable to Morgan Stanley was $1.58 billion, down 12% year over year.
Revenue Decline Offset by Lower Costs
Net revenue amounted to $8.91 billion, a decrease of 9% from the prior-year quarter. However, it surpassed the Zacks Consensus Estimate of $8.34 billion.
Net interest income was $913 million, up 31% from the year-ago quarter. This was driven by a 10% fall in interest expenses and 20% growth in interest income. Meanwhile, total non-interest revenue of $8 billion fell 12% year over year, as all components witnessed deterioration.
Total non-interest expenses were $6.43 billion, down 8% year over year. The fall is attributable to an 8% decline in non-compensation expenses and a 9% reduction in compensation and benefits.
Quarterly Segmental Performance
Institutional Securities (IS): Pre-tax income from continuing operations was $1.51 billion, down 7% year over year. Net revenue was $4.58 billion, a decline of 11% from the year-ago quarter. The fall was primarily due to lower FICC income, underwriting fees, and equity sales and trading net revenues partly offset by higher advisory revenues.
Wealth Management (WM): Pre-tax income from continuing operations totaled $859 million, a dip of 3% on a year over year basis. Net revenue was $3.81 billion, down 2% year over year, due to a fall in transactional revenues and asset management fee revenue. These were, nevertheless, partially offset by a rise in net interest income.
Investment Management (IM): Pre-tax income from continuing operations was $118 million, down 46% from the year-ago quarter. Net revenue was $583 million, a fall of 22% year over year. The decrease reflected lower investment gains and carried interest in infrastructure and private equity investments.
As of Jun 30, 2016, total assets under management or supervision were $406 billion, up 1% on a year over year basis.
Strong Capital Position
As of Jun 30, 2016, book value per share was $36.29, up from $34.52 as of Jun 30, 2015. Tangible book value per share was $31.39, up from $29.54 as of Jun 30, 2015.
Morgan Stanley’s Tier 1 capital ratio Advanced (Transitional) was 18.8% versus 15.7% in the year-ago quarter and Tier 1 common equity ratio Advanced (Transitional) was 16.9% versus 14.0% in the prior-year quarter.
Share Repurchases
During the reported quarter, Morgan Stanley bought back around 23 million shares for nearly $625 million. This was part of the share buyback program announced by the company, under which shares worth up to $3.1 billion can be repurchased through the second quarter of 2016.
Further, Morgan Stanley announced a new share repurchase plan of up to $3.5 billion shares beginning third quarter of 2016 through the end of second quarter of 2017. This is part of the company’s 2016 capital plan that was approved by the Fed last month.
Dividend Hike
Concurrent with the earnings release, Morgan Stanley declared 20 cents per share quarterly dividend, representing 33% increase from the prior payout. The dividend will be paid on Aug 15, to shareholders of record as on Jul 29.
Our Take
Continued tough operating environment led to a substantial decline in the top line. Though interest income showed improvement, a slump in trading activities drove the results down. Also, stringent capital norms may somewhat reduce the company’s flexibility with respect to its investments and lending volumes.
Nonetheless, Morgan Stanley’s initiatives to offload its non-core assets in order to lower balance-sheet risks and shift focus toward less capital-incentive IM and WM segments are commendable. Also, a full control of Morgan Stanley Wealth Management joint venture continues to aid the diversification of the company’s revenue base.
MORGAN STANLEY Price, Consensus and EPS Surprise
MORGAN STANLEY Price, Consensus and EPS Surprise | MORGAN STANLEY Quote
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
Among other banking giants, JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corp. (BAC - Free Report) and Citigroup Inc. (C - Free Report) already have come out with their second-quarter results. The performances of these companies have been encouraging.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>