Back to top

Image: Bigstock

Morgan Stanley (MS) Q4 Earnings Beat on Trading, Wealth Business

Read MoreHide Full Article

Morgan Stanley’s (MS - Free Report) fourth-quarter 2020 adjusted earnings of $1.92 per share easily outpaced the Zacks Consensus Estimate of $1.29. Also, the bottom line improved 48% from the year-ago quarter.

Shares of Morgan Stanley gained almost 2% in pre-market trading as investors cheered solid trading and investment banking (IB) performance, and E*Trade Financial deal (closed in October 2020) provided support to the Wealth Management segment.

As anticipated, Morgan Stanley’s trading business delivered a solid performance. Fixed income trading revenues grew 31% year over year and equity trading income rose 30%. Thus, overall trading revenues increased 32%.

Further, IB business was impressive despite weaknesses in fixed income underwriting (corresponding fees down 5%). Equity underwriting fees soared 137% from the prior-year quarter, while advisory fees were up 26%. Therefore, IB fees jumped 46%.

Additionally, higher net interest income, mainly driven by a rise in loan balance (up 22%) and plunge in interest expenses supported the top line.

However, mounting operating expenses hurt the results to some extent.

Results excluded integration-related expenses related to E*Trade Financial deal. Including this, net income applicable to common shareholders was $3.3 billion, which grew 57% from a year ago.

Trading, IB Aid Revenues Increase, Costs Rise

Net revenues were $13.6 billion, increasing 26% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $10.3 billion.

Net interest income was $1.9 billion, which grew 31% from the year-ago quarter. This was largely due to an 85% plunge in interest expenses.

Total non-interest revenues of $11.8 billion surged 25% year over year.

Total non-interest expenses were $9.2 billion, up 13% from the prior-year number.

The company recorded provision for credit losses on loans and lending commitments of $5 million, down significantly from $57 million in the prior-year quarter. Allowance for credit losses on loans and lending commitments was $1.2 billion as of Dec 31, 2020, down 2% sequentially.

Decent Quarterly Segment Performance

Institutional Securities: Pre-tax income from continuing operations was $3.2 billion, surging significantly from $1.2 billion in the prior-year quarter. Net revenues were $7 billion, growing 39%. The rise was mainly driven by higher equity underwriting, advisory and trading revenues, partially offset by decline in fixed income underwriting revenues.

Wealth Management: The segment includes results of E*Trade Financial. Pre-tax income from continuing operations totaled $1.1 billion, down 8% from the year-ago figure. Net revenues were $5.7 billion, increasing 24% driven by higher transactional, net interest income and asset management revenues.

Investment Management: Pre-tax income from continuing operations was $196 million, falling 56% from the year-ago quarter. Net revenues were $1.1 billion, down 19%. The decline was mainly due to lower investment revenues, partly offset by a rise in asset management fees.

As of Dec 31, 2020, total assets under management or supervision were $781 billion, up 41% on a year-over-year basis.

Strong Capital Position

As of Dec 31, 2020, book value per share was $51.13, up from $45.82 in the corresponding period of 2019. Tangible book value per share was $41.95, up from $40.01 on Dec 31, 2019.

Morgan Stanley’s Tier 1 capital ratio was 19.8% compared with 19.2% in the year-ago quarter. Tier 1 common equity ratio was 17.7%, up from 16.9%.

Our Take

Morgan Stanley’s efforts to diversify operations with more focus on those that are less dependent on capital markets are commendable. The planned acquisition of Eaton Vance (EV - Free Report) and the buyout of E*Trade Financial are steps in this direction. 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 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

Unexpected large reserve releases, along with solid capital markets performance, drove JPMorgan’s (JPM - Free Report) fourth-quarter 2020 earnings of $3.79 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.72.

Aided by revenue strength, Goldman Sachs (GS - Free Report) reported fourth-quarter 2020 earnings per share of $12.08, significantly surpassing the Zacks Consensus Estimate of $6.99. Also, the bottom-line figure compares favorably with the earnings of $4.69 per share recorded in the year-earlier 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.

See these 7 breakthrough stocks now>>

Published in