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Morgan Stanley (MS) Stock Gains on Q4 Earnings Beat, Costs Up

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Morgan Stanley’s (MS - Free Report) fourth-quarter 2021 adjusted earnings of $2.08 per share easily outpaced the Zacks Consensus Estimate of $2.00. The bottom line reflects a rise of 8% from the year-ago quarter’s level.

The stock moved up 1.8% in pre-market trading. Notably, the full-day trading session will display a clearer picture.

Morgan Stanley’s trading business did not perform significantly well. Fixed income trading revenues declined 31% year over year, while equity trading income rose 13%.

The performance of the investment banking (“IB”) business was strong. Equity underwriting fees decreased 15% from the prior-year quarter’s level, while fixed income underwriting rose 7%. Advisory fees were up 30% year over year. Therefore, IB fees improved 6%.

Higher net interest income, mainly driven by a rise in total loan balance (up 24%) and a plunge in interest expenses, supported the top line.

However, mounting operating expenses hurt results to some extent.

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 was $3.6 billion, up 10% from the year-ago quarter’s number.

For 2021, adjusted earnings per share of $8.22 surpassed the Zacks Consensus Estimate of $7.95. The reported figure represents a rise of 25% from the previous year. Net income applicable to common shareholders (GAAP basis) was $14.6 billion, up 39% year over year.

Revenues Improve, Expenses Rise

Quarterly net revenues were $14.5 billion, up 7% from the prior-year quarter. The top line lagged the Zacks Consensus Estimate of $14.8 billion.

Net revenues for 2021 were $59.8 billion, up 23% from the prior year. The top line missed the Zacks Consensus Estimate of $60 billion.

The quarterly net interest income was $2.1 billion, up 12% from the year-ago quarter. The upside was largely due to a 14% decline in interest expenses.

Total non-interest revenues of $12.4 billion increased 6% year over year.

Total non-interest expenses were $9.6 billion, up 5% year over year.

Provision for credit losses was $5 million, up 25% from the prior-year quarter.

Quarterly Segmental Performance

Institutional Securities: Pre-tax income was $3 billion, down 6% from the prior-year quarter. Net revenues were $6.7 billion, down 4%. The upside was driven by an increase in investment banking revenues and equity trading revenues, partly offset by lower fixed income trading revenues.

Wealth Management: The segment includes the results of E*Trade Financial. Pre-tax income totaled $1.4 billion, up 32% year over year. Net revenues were $6.3 billion, increasing 10%, driven by higher net interest income and asset management revenues.

Total client assets as of Dec 31, 2021, were $4.9 trillion, up 23 % year over year.

Investment Management: The segment includes the results of Eaton Vance. Pre-tax income was $508 million, rising 159% from the year-ago quarter’s level. Net revenues were $1.8 billion, surging 59%. The upswing was driven by higher asset management and related fees.

As of Dec 31, 2021, total assets under management or supervision were $1.6 trillion, up significantly from $781 billion as of Dec 31, 2020.

Strong Capital Position

As of Dec 31, 2021, book value per share was $55.12, up from $51.13 recorded in the corresponding period of 2020. Tangible book value per share was $40.91, down from $41.95 as of Dec 31, 2020.

Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 19.3% compared with 19.8% in the year-ago quarter. Common equity Tier 1 capital ratio was 17.5%, down from 17.7%.

Capital Deployment Update

In the reported quarter, Morgan Stanley repurchased shares worth $2.8 billion.

Our Take

Morgan Stanley’s efforts to diversify operations with more focus on those which are less dependent on the capital markets are commendable. The acquisitions of Eaton Vance and E*Trade Financial are steps in this direction. The company’s increased focus on corporate lending is expected to support its financials. However, elevated expenses due to the company’s constant investments in franchise are likely to hurt the bottom line.

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Large Banks

Robust advisory business, reserve releases and a rise in loan demand drove JPMorgan’s (JPM - Free Report) fourth-quarter 2021 earnings of $3.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.01. Results included net credit reserve releases. Excluding this, earnings were $2.86 per share.

JPM’s equity markets revenues and fixed-income markets revenues fell 2% and 16%, respectively, on a year-over-year basis. Total markets revenues of $5.3 billion declined 11%. While lower rates continued to hurt JPMorgan’s interest income, it was more than offset by a rise in loan balances.

Bank of New York Mellon Corporation’s (BK - Free Report) fourth-quarter 2021 adjusted earnings of $1.04 per share surpassed the Zacks Consensus Estimate of $1.02. The bottom line represents a rise of 8.3% from the prior-year quarter.

For BK, its quarterly results were aided by provision benefits and a rise in fee income. Growth in asset balances was another tailwind. However, a marginal fall in net interest income and higher expenses were the undermining factors.

Citigroup (C - Free Report) delivered an earnings surprise of 5.04% in fourth-quarter 2021. Income from continuing operations per share of $1.46 handily outpaced the Zacks Consensus Estimate of $1.39. However, the reported figure declined 24% from the prior-year quarter.

Citigroup’s investment banking revenues jumped in the quarter under review, driven by equity underwriting as well as growth in advisory revenues. However, fixed-income revenues were down due to declining rates and spread products.