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Morgan Stanley (MS) Q2 Earnings Beat Estimates, Revenues Rise
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Morgan Stanley’s (MS - Free Report) second-quarter 2023 earnings of $1.24 per share surpassed the Zacks Consensus Estimate of $1.14. However, the bottom line reflects a decline of 11% from the year-ago quarter.
As expected, the performance of the investment banking (“IB”) business was not very impressive. While equity and fixed income underwriting fees increased 52% and 21%, respectively, from the prior-year quarter, advisory fees declined 24%. Therefore, total IB fees increased only marginally from the prior-year quarter.
Further, because of subdued volatility and client activity, Morgan Stanley’s trading business performance was weak. Fixed-income trading revenues decreased 31% and equity trading income declined 14% year over year.
Higher expenses and provisions were the other headwinds in the quarter.
Despite a significant increase in interest income (driven by higher rates), the company’s net interest income (NII) declined year over year because of substantially higher interest expenses.
Net income applicable to common shareholders was $2.05 billion, down 14% from the year-ago quarter. Our estimate for the metric was $2.48 billion.
Revenues Improve, Expenses Rise
Net revenues were $13.46 billion, up 2% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $12.76 billion.
NII was $2.01 billion, down 12% year over year. We had projected NII of $2.32 billion for the second quarter.
Total non-interest revenues of $11.45 billion increased 6%. Our estimate for the metric was $10.91 billion.
Total non-interest expenses were $10.48 billion, up 8% year over year. Our estimate for expenses was $9.70 billion.
Provision for credit losses was $161 million in the second quarter, up 59% from $101 million recorded in the prior-year quarter. Our estimate for the metric was $123.4 million.
Quarterly Segment Performance
Institutional Securities: Pre-tax income was $977 million, down 37% from the prior-year quarter. Our estimate for the same was $1.34 billion. Net revenues were $5.65 billion, down 8%. We had projected total revenues to be $5.68 billion. The downside resulted from a fall in advisory revenues, and fixed-income and equity trading revenues.
Wealth Management: Pre-tax income totaled $1.68 billion, up 11% year over year. Our estimate for the same was $1.86 billion. Net revenues were $6.66 billion, up 16%, driven by higher net interest income and transactional revenues. We had projected total revenues of $6.35 billion.
Total client assets were $4.89 trillion as of Jun 30, 2023, up 15% year over year.
Investment Management: Pre-tax income was $170 million, falling 32% from the year-ago quarter. Our estimate for the same was $202.6 million. Net revenues were $1.28 billion, down 9%. The fall was due to a decline in asset management and related fees, along with a fall in performance-based income and other income. We had projected total revenues of $1.33 billion.
As of Jun 30, 2023, total assets under management or supervision were $1.41 trillion, up 5% from Jun 30, 2022.
Capital Position Improves
As of Jun 30, 2023, the book value per share was $55.24, up from $54.46 in the corresponding period of 2022. The tangible book value per share was $40.79, up from $40.07 as of Jun 30, 2022.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.8% compared with 17.1% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.9%, up from 15.5% a year ago.
Capital Deployment Update
In the reported quarter, Morgan Stanley repurchased 12 million shares for $1 billion.
Moreover, the company’s board of directors reauthorized a multi-year share repurchase program of up to $20 billion, beginning in the third quarter of 2023.
MS declared a quarterly dividend of 85 cents per share, representing an increase of 9.7% from the prior payout. The dividend will be paid out on Aug 15, to shareholders of record as of Jul 31.
Our View
Elevated expenses due to investments in franchises will likely continue to hurt Morgan Stanley’s profits. Uncertainty about the performance of the capital markets makes us apprehensive. Yet, the company’s increased focus on corporate lending will likely keep aiding revenues. Also, higher interest rates are expected to aid net interest income growth.
Citigroup Inc.’s (C - Free Report) second-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.37 outpaced the Zacks Consensus Estimate of $1.31.
Citigroup witnessed a decline in revenues due to lower revenues in the Institutional Clients Group. Also, the higher cost of credit was a spoilsport. Nonetheless, higher revenues in Personal Banking and Wealth Management segments were a bright spot for C.
State Street’s (STT - Free Report) second-quarter 2023 earnings of $2.17 per share surpassed the Zacks Consensus Estimate of $2.08. The bottom line was 13.6%, higher than the prior-year level.
STT’s results were primarily aided by an increase in net interest revenues and fee revenues. Also, the net interest margin improved year over year on higher rates. The company recorded a provision benefit in the quarter under review, which was another positive. However, higher expenses hurt STT’s results to some extent.
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Morgan Stanley (MS) Q2 Earnings Beat Estimates, Revenues Rise
Morgan Stanley’s (MS - Free Report) second-quarter 2023 earnings of $1.24 per share surpassed the Zacks Consensus Estimate of $1.14. However, the bottom line reflects a decline of 11% from the year-ago quarter.
As expected, the performance of the investment banking (“IB”) business was not very impressive. While equity and fixed income underwriting fees increased 52% and 21%, respectively, from the prior-year quarter, advisory fees declined 24%. Therefore, total IB fees increased only marginally from the prior-year quarter.
Further, because of subdued volatility and client activity, Morgan Stanley’s trading business performance was weak. Fixed-income trading revenues decreased 31% and equity trading income declined 14% year over year.
Higher expenses and provisions were the other headwinds in the quarter.
Despite a significant increase in interest income (driven by higher rates), the company’s net interest income (NII) declined year over year because of substantially higher interest expenses.
Net income applicable to common shareholders was $2.05 billion, down 14% from the year-ago quarter. Our estimate for the metric was $2.48 billion.
Revenues Improve, Expenses Rise
Net revenues were $13.46 billion, up 2% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $12.76 billion.
NII was $2.01 billion, down 12% year over year. We had projected NII of $2.32 billion for the second quarter.
Total non-interest revenues of $11.45 billion increased 6%. Our estimate for the metric was $10.91 billion.
Total non-interest expenses were $10.48 billion, up 8% year over year. Our estimate for expenses was $9.70 billion.
Provision for credit losses was $161 million in the second quarter, up 59% from $101 million recorded in the prior-year quarter. Our estimate for the metric was $123.4 million.
Quarterly Segment Performance
Institutional Securities: Pre-tax income was $977 million, down 37% from the prior-year quarter. Our estimate for the same was $1.34 billion. Net revenues were $5.65 billion, down 8%. We had projected total revenues to be $5.68 billion. The downside resulted from a fall in advisory revenues, and fixed-income and equity trading revenues.
Wealth Management: Pre-tax income totaled $1.68 billion, up 11% year over year. Our estimate for the same was $1.86 billion. Net revenues were $6.66 billion, up 16%, driven by higher net interest income and transactional revenues. We had projected total revenues of $6.35 billion.
Total client assets were $4.89 trillion as of Jun 30, 2023, up 15% year over year.
Investment Management: Pre-tax income was $170 million, falling 32% from the year-ago quarter. Our estimate for the same was $202.6 million. Net revenues were $1.28 billion, down 9%. The fall was due to a decline in asset management and related fees, along with a fall in performance-based income and other income. We had projected total revenues of $1.33 billion.
As of Jun 30, 2023, total assets under management or supervision were $1.41 trillion, up 5% from Jun 30, 2022.
Capital Position Improves
As of Jun 30, 2023, the book value per share was $55.24, up from $54.46 in the corresponding period of 2022. The tangible book value per share was $40.79, up from $40.07 as of Jun 30, 2022.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.8% compared with 17.1% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.9%, up from 15.5% a year ago.
Capital Deployment Update
In the reported quarter, Morgan Stanley repurchased 12 million shares for $1 billion.
Moreover, the company’s board of directors reauthorized a multi-year share repurchase program of up to $20 billion, beginning in the third quarter of 2023.
MS declared a quarterly dividend of 85 cents per share, representing an increase of 9.7% from the prior payout. The dividend will be paid out on Aug 15, to shareholders of record as of Jul 31.
Our View
Elevated expenses due to investments in franchises will likely continue to hurt Morgan Stanley’s profits. Uncertainty about the performance of the capital markets makes us apprehensive. Yet, the company’s increased focus on corporate lending will likely keep aiding revenues. Also, higher interest rates are expected to aid net interest income growth.
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 Banks
Citigroup Inc.’s (C - Free Report) second-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.37 outpaced the Zacks Consensus Estimate of $1.31.
Citigroup witnessed a decline in revenues due to lower revenues in the Institutional Clients Group. Also, the higher cost of credit was a spoilsport. Nonetheless, higher revenues in Personal Banking and Wealth Management segments were a bright spot for C.
State Street’s (STT - Free Report) second-quarter 2023 earnings of $2.17 per share surpassed the Zacks Consensus Estimate of $2.08. The bottom line was 13.6%, higher than the prior-year level.
STT’s results were primarily aided by an increase in net interest revenues and fee revenues. Also, the net interest margin improved year over year on higher rates. The company recorded a provision benefit in the quarter under review, which was another positive. However, higher expenses hurt STT’s results to some extent.