Despite disappointing capital markets performance, Morgan Stanley’s (MS - Free Report) second-quarter 2019 earnings of $1.23 per share outpaced the Zacks Consensus Estimate of $1.13. However, the figure reflected a fall of 2% from adjusted earnings recorded in the year-ago quarter.
Shares of Morgan Stanley fell nearly 1.3% in pre-market following a steep decline in equity trading revenues. The stock’s price performance after the full day’s trading will give a better picture.
Higher net interest income, driven by rise in loan balance and higher rates, and investments supported the top line. Further, operating expenses witnessed a decline. Also, the company’s capital ratios remained strong.
Nonetheless, as expected, trading revenues declined as equity and fixed income trading income fell 14% and 18%, respectively. Additionally, overall investment banking performance was disappointing. Advisory fees fell 18% and debt underwriting revenues decreased 22%, while equity underwriting fees inched up 1%.
Net income applicable to Morgan Stanley was $2.20 billion, down 10% from the prior-year quarter.
Trading, Investment Banking Hurt Revenues, Costs Decline
Net revenues amounted to $10.24 billion, a decline of 3% from the prior-year quarter. However, the top line beat the Zacks Consensus Estimate of $9.98 billion.
Net interest income was $1.02 billion, up 14% from the year-ago quarter. This was largely due to a rise in interest income, partially offset by higher interest expenses.
Total non-interest revenues of $9.22 billion fell 5% year over year, primarily due to dismal investment banking and trading performance.
Total non-interest expenses were $7.34 billion, down 2% year over year.
Decent Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $1.46 billion, decreasing 19% year over year. Net revenues of $5.11 billion fell 11%. The decline was mainly due to lower trading income and investment banking revenues.
Wealth Management: Pre-tax income from continuing operations totaled $1.24 billion, up 7%. Net revenues were $4.41 billion, up 2% year over year as a rise in transactional revenues and asset management revenues was offset by lower net interest income.
Investment Management: Pre-tax income from continuing operations was $199 million, surging 42% from the year-ago quarter. Net revenues were $839 million, up 21%. The increase was mainly driven by stable asset management fees and higher investment revenues.
As of Jun 30, 2019, total assets under management or supervision were $497 billion, up 5% on a year-over-year basis.
Strong Capital Position
As of Jun 30, 2019, book value per share was $44.13, up from $40.34 as of Jun 30, 2018. Tangible book value per share was $38.44, up from $35.19 a year ago.
Morgan Stanley’s Tier 1 capital ratio Advanced was 18.9% compared with 19.0% in the year-ago quarter. Tier 1 common equity ratio Advanced was 16.7% compared with 16.6% a year ago.
Share Repurchase Update
During the reported quarter, Morgan Stanley bought back around 26 million shares for nearly $1.2 billion. This was part of the company's 2018 capital plan.
Dividend Hike
Concurrently, Morgan Stanley announced quarterly dividend of 35 cents per share, representing a 16.7% hike from the prior payout. The dividend will be paid on Aug 15 to shareholders of record as on Jul 31.
Our Viewpoint
Morgan Stanley’s focus on less capital-incentive operations like wealth management is commendable. However, continued slump in investment banking and trading remains a major near-term concern. This will likely have an adverse impact on its financials.
Currently, Morgan Stanley carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among banking giants, JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) and Citigroup (C - Free Report) have already come out with second-quarter results. Similar to Morgan Stanley, financials of these companies were hurt by dismal investment banking and trading performance.
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Despite disappointing capital markets performance, Morgan Stanley’s (MS - Free Report) second-quarter 2019 earnings of $1.23 per share outpaced the Zacks Consensus Estimate of $1.13. However, the figure reflected a fall of 2% from adjusted earnings recorded in the year-ago quarter.
Shares of Morgan Stanley fell nearly 1.3% in pre-market following a steep decline in equity trading revenues. The stock’s price performance after the full day’s trading will give a better picture.
Higher net interest income, driven by rise in loan balance and higher rates, and investments supported the top line. Further, operating expenses witnessed a decline. Also, the company’s capital ratios remained strong.
Nonetheless, as expected, trading revenues declined as equity and fixed income trading income fell 14% and 18%, respectively. Additionally, overall investment banking performance was disappointing. Advisory fees fell 18% and debt underwriting revenues decreased 22%, while equity underwriting fees inched up 1%.
Net income applicable to Morgan Stanley was $2.20 billion, down 10% from the prior-year quarter.
Trading, Investment Banking Hurt Revenues, Costs Decline
Net revenues amounted to $10.24 billion, a decline of 3% from the prior-year quarter. However, the top line beat the Zacks Consensus Estimate of $9.98 billion.
Net interest income was $1.02 billion, up 14% from the year-ago quarter. This was largely due to a rise in interest income, partially offset by higher interest expenses.
Total non-interest revenues of $9.22 billion fell 5% year over year, primarily due to dismal investment banking and trading performance.
Total non-interest expenses were $7.34 billion, down 2% year over year.
Decent Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $1.46 billion, decreasing 19% year over year. Net revenues of $5.11 billion fell 11%. The decline was mainly due to lower trading income and investment banking revenues.
Wealth Management: Pre-tax income from continuing operations totaled $1.24 billion, up 7%. Net revenues were $4.41 billion, up 2% year over year as a rise in transactional revenues and asset management revenues was offset by lower net interest income.
Investment Management: Pre-tax income from continuing operations was $199 million, surging 42% from the year-ago quarter. Net revenues were $839 million, up 21%. The increase was mainly driven by stable asset management fees and higher investment revenues.
As of Jun 30, 2019, total assets under management or supervision were $497 billion, up 5% on a year-over-year basis.
Strong Capital Position
As of Jun 30, 2019, book value per share was $44.13, up from $40.34 as of Jun 30, 2018. Tangible book value per share was $38.44, up from $35.19 a year ago.
Morgan Stanley’s Tier 1 capital ratio Advanced was 18.9% compared with 19.0% in the year-ago quarter. Tier 1 common equity ratio Advanced was 16.7% compared with 16.6% a year ago.
Share Repurchase Update
During the reported quarter, Morgan Stanley bought back around 26 million shares for nearly $1.2 billion. This was part of the company's 2018 capital plan.
Dividend Hike
Concurrently, Morgan Stanley announced quarterly dividend of 35 cents per share, representing a 16.7% hike from the prior payout. The dividend will be paid on Aug 15 to shareholders of record as on Jul 31.
Our Viewpoint
Morgan Stanley’s focus on less capital-incentive operations like wealth management is commendable. However, continued slump in investment banking and trading remains a major near-term concern. This will likely have an adverse impact on its financials.
Currently, Morgan Stanley carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among banking giants, JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) and Citigroup (C - Free Report) have already come out with second-quarter results. Similar to Morgan Stanley, financials of these companies were hurt by dismal investment banking and trading performance.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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