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Morgan Stanley (MS) Q2 Earnings Beat on IB, Trading Strength
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Morgan Stanley’s (MS - Free Report) second-quarter 2020 adjusted earnings of $2.04 per share hugely surpassed the Zacks Consensus Estimate of $1.17. Also, the figure improved 66% from the year-ago quarter.
Shares of Morgan Stanley gained almost 1.5% in pre-market trading indicating that investors have taken the results in their stride. The full day’s trading session will likely depict a better picture.
As anticipated, Morgan Stanley’s trading business delivered a stellar performance. Fixed income trading revenues soared 168% year over year and equity trading income grew 23%. Thus, overall trading revenues jumped 68% from the year-ago period.
Further, the investment banking (IB) business was impressive, despite weakness in advisory (resulting in a 9% year-over-year decline in corresponding fees). Equity underwriting fees jumped 62%, while fixed income underwriting revenues surged 68% from the prior-year quarter. Therefore, IB fees rose 39% from the year-ago quarter.
Additionally, higher net interest income — driven by a rise in loan balance (up 14%) and lower interest expenses — supported the top line.
However, mounting operating expenses hurt the results to some extent. The company recorded provision for credit losses on loans and lending commitments of $239 million, up significantly from $18 million in the prior-year quarter.
Net income applicable to common shareholders during the quarter was $3.05 billion, which grew 50% from a year ago.
Improved Trading Aids Revenues, Costs Rise
Net revenues were $13.41 billion, surging 31% from the prior-year quarter. Moreover, the top line beat the Zacks Consensus Estimate of $10.78 billion.
Net interest income was $1.6 billion, which jumped 55% from the year-ago quarter. This was largely due to a 78% plunge in interest expenses.
Total non-interest revenues of $11.81 billion grew 28% year over year.
Total non-interest expenses were $9.06 billion, up 23% from the prior-year number. The increase was largely due to a 33% increase in compensation and benefits cost.
Solid Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $2.99 billion, growing substantially from $1.46 billion in the prior year quarter. Net revenues were $7.98 billion, soaring 56% year over year. The rise was mainly driven by higher IB and trading revenues.
Wealth Management: Pre-tax income from continuing operations totaled $1.14 billion, down 8% from the year-ago figure. Net revenues were $4.68 billion, increasing 6% year over year, as higher transactional revenues and a slight increase in net interest income were partially offset by lower asset management revenues.
Investment Management: Pre-tax income from continuing operations was $216 million, rising 9% from the year-ago quarter. Net revenues were $886 million, up 6% from the prior-year level. The increase was mainly attributed to a rise in asset management fees, partially offset by lower investment revenues.
As of Jun 30, 2020, total assets under management or supervision were $665 billion, up 34% on a year-over-year basis.
Strong Capital Position
As of Jun 30, 2020, book value per share was $49.57, up from $44.13 in the corresponding period of 2019. Tangible book value per share was $43.68, up from $38.44 in the comparable year-ago period.
Morgan Stanley’s Tier 1 capital ratio was 18.1% compared with 18.3% in the year-ago quarter. Tier 1 common equity ratio was 16.1%, down from 16.3% in the prior year.
Our Viewpoint
Morgan Stanley’s focus on less capital-incentive operations like wealth management is commendable. However, coronavirus-related concerns and economic slowdown are expected to continue hurting the company’s financials in the near term.
As expected, a significant improvement in trading and mortgage banking businesses drove JPMorgan’s (JPM - Free Report) second-quarter 2020 earnings of $1.38 per share. The bottom line surpassed the Zacks Consensus Estimate of $1.34.
Goldman Sachs (GS - Free Report) reported second-quarter 2020 earnings per share of $6.26, comfortably surpassing the Zacks Consensus Estimate of $3.97. Also, the bottom line compared favorably with earnings of $5.81 per share recorded in the year-earlier quarter.
Citigroup (C - Free Report) delivered an earnings surprise of 6.4% in second-quarter 2020 on robust revenue strength. Earnings per share of 50 cents for the quarter handily outpaced the Zacks Consensus Estimate of 47 cents. The results, however, significantly deteriorated from the prior-year quarter.
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Morgan Stanley (MS) Q2 Earnings Beat on IB, Trading Strength
Morgan Stanley’s (MS - Free Report) second-quarter 2020 adjusted earnings of $2.04 per share hugely surpassed the Zacks Consensus Estimate of $1.17. Also, the figure improved 66% from the year-ago quarter.
Shares of Morgan Stanley gained almost 1.5% in pre-market trading indicating that investors have taken the results in their stride. The full day’s trading session will likely depict a better picture.
As anticipated, Morgan Stanley’s trading business delivered a stellar performance. Fixed income trading revenues soared 168% year over year and equity trading income grew 23%. Thus, overall trading revenues jumped 68% from the year-ago period.
Further, the investment banking (IB) business was impressive, despite weakness in advisory (resulting in a 9% year-over-year decline in corresponding fees). Equity underwriting fees jumped 62%, while fixed income underwriting revenues surged 68% from the prior-year quarter. Therefore, IB fees rose 39% from the year-ago quarter.
Additionally, higher net interest income — driven by a rise in loan balance (up 14%) and lower interest expenses — supported the top line.
However, mounting operating expenses hurt the results to some extent. The company recorded provision for credit losses on loans and lending commitments of $239 million, up significantly from $18 million in the prior-year quarter.
Net income applicable to common shareholders during the quarter was $3.05 billion, which grew 50% from a year ago.
Improved Trading Aids Revenues, Costs Rise
Net revenues were $13.41 billion, surging 31% from the prior-year quarter. Moreover, the top line beat the Zacks Consensus Estimate of $10.78 billion.
Net interest income was $1.6 billion, which jumped 55% from the year-ago quarter. This was largely due to a 78% plunge in interest expenses.
Total non-interest revenues of $11.81 billion grew 28% year over year.
Total non-interest expenses were $9.06 billion, up 23% from the prior-year number. The increase was largely due to a 33% increase in compensation and benefits cost.
Solid Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $2.99 billion, growing substantially from $1.46 billion in the prior year quarter. Net revenues were $7.98 billion, soaring 56% year over year. The rise was mainly driven by higher IB and trading revenues.
Wealth Management: Pre-tax income from continuing operations totaled $1.14 billion, down 8% from the year-ago figure. Net revenues were $4.68 billion, increasing 6% year over year, as higher transactional revenues and a slight increase in net interest income were partially offset by lower asset management revenues.
Investment Management: Pre-tax income from continuing operations was $216 million, rising 9% from the year-ago quarter. Net revenues were $886 million, up 6% from the prior-year level. The increase was mainly attributed to a rise in asset management fees, partially offset by lower investment revenues.
As of Jun 30, 2020, total assets under management or supervision were $665 billion, up 34% on a year-over-year basis.
Strong Capital Position
As of Jun 30, 2020, book value per share was $49.57, up from $44.13 in the corresponding period of 2019. Tangible book value per share was $43.68, up from $38.44 in the comparable year-ago period.
Morgan Stanley’s Tier 1 capital ratio was 18.1% compared with 18.3% in the year-ago quarter. Tier 1 common equity ratio was 16.1%, down from 16.3% in the prior year.
Our Viewpoint
Morgan Stanley’s focus on less capital-incentive operations like wealth management is commendable. However, coronavirus-related concerns and economic slowdown are expected to continue hurting the company’s financials in the near term.
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 Big Banks
As expected, a significant improvement in trading and mortgage banking businesses drove JPMorgan’s (JPM - Free Report) second-quarter 2020 earnings of $1.38 per share. The bottom line surpassed the Zacks Consensus Estimate of $1.34.
Goldman Sachs (GS - Free Report) reported second-quarter 2020 earnings per share of $6.26, comfortably surpassing the Zacks Consensus Estimate of $3.97. Also, the bottom line compared favorably with earnings of $5.81 per share recorded in the year-earlier quarter.
Citigroup (C - Free Report) delivered an earnings surprise of 6.4% in second-quarter 2020 on robust revenue strength. Earnings per share of 50 cents for the quarter handily outpaced the Zacks Consensus Estimate of 47 cents. The results, however, significantly deteriorated from the prior-year quarter.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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