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Morgan Stanley (MS) Beats Q4 Earnings Amid Trading Weakness
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Amid trading slowdown, higher interest income and improvement in underwriting fees drove Morgan Stanley’s (MS - Free Report) fourth-quarter 2017 adjusted earnings of 84 cents per share, which handily outpaced the Zacks Consensus Estimate of 77 cents. The reported figure was 14% above the prior-year quarter.
Shares of Morgan Stanley have gained more than 1.5% in pre-market trading, largely driven by impressive investment banking performance. The stock’s price performance after the full day’s trading will give a better indication about investors’ sentiments.
Solid underwriting fees (up 42%) and higher net interest income were largely responsible for the improved results. Also, the company’s capital ratios remained strong.
However, as expected, fixed-income, currency and commodities income (down 45%) and equity trading income declined (down 2%). Also, lower advisory fees were an undermining factor.
After considering a net discrete tax provision, net income applicable to Morgan Stanley was $686 million or 29 cents per share.
For 2017, adjusted earnings of $3.60 per share beat the Zacks Consensus Estimate of $3.58. Also, it was up 25% year over year. After considering a net discrete tax provision, net income available to common shareholders was $6.2 billion or $3.09 per share.
Rise in Investment Banking Aids Revenues, Costs Rise
Net revenues amounted to $9.5 billion, a rise of 5% from the prior-year quarter. In addition, it surpassed the Zacks Consensus Estimate of $9.1 billion.
For 2017, net revenues were up 10% from the prior year to $37.9 billion. The figure was above the Zacks Consensus Estimate of $37.5 billion.
Net interest income was $995 million, up 13% from the year-ago quarter. This was largely driven by a rise in interest income. Also, total non-interest revenues of $8.5 billion grew 5% year over year, primarily supported by improvement in investments.
Total non-interest expenses were $7 billion, up 4% year over year. The rise was due to a 5% increase in compensation and benefits costs.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $1.2 billion, down 7% year over year. Net revenues of $4.5 billion fell 2% from the prior-year quarter. The decline was mainly due to lower trading income and advisory revenues, partially offset by increase in underwriting income.
Wealth Management: Pre-tax income from continuing operations totaled $1.2 billion, a jump of 29% on a year-over-year basis. Net revenues were $4.4 billion, up 10% year over year, driven by higher asset management fee revenues, net interest income and transactional revenues.
Investment Management: Pre-tax income from continuing operations was $80 million, surging significantly from the year-ago quarter. Net revenues were $637 million, a rise of 27% year over year. The increase reflected higher investment revenues and asset management fees.
As of Dec 31, 2017, total assets under management or supervision were $482 billion, up 16% on a year-over-year basis.
Strong Capital Position
As of Dec 31, 2017, book value per share was $38.54, up from $36.99 as of Dec 31, 2016. Tangible book value per share was $33.48, up from $31.98 as of Dec 31, 2016.
Morgan Stanley’s Tier 1 capital ratio Advanced (Transitional) was 20.0%, up from 19.0% in the year-ago quarter. Tier 1 common equity ratio Advanced (Transitional) was 17.5% compared with 16.9% in the prior-year quarter.
Share Repurchases
During the reported quarter, Morgan Stanley bought back around 25 million shares for nearly $1.25 billion. This was part of the company's 2017 capital plan.
Our Take
Morgan Stanley’s initiatives to offload its non-core assets to lower balance-sheet risks and shift focus on less capital-incentive operations like wealth management are commendable. Further, steady improvement in investment banking income will support its top line. However, a decline in bond trading fees owing to low client activity is an issue.
Among banking giants, JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corp. (BAC - Free Report) and Citigroup Inc. (C - Free Report) have already come out with their fourth-quarter results. The performance of these companies was impressive despite the trading slump.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Morgan Stanley (MS) Beats Q4 Earnings Amid Trading Weakness
Amid trading slowdown, higher interest income and improvement in underwriting fees drove Morgan Stanley’s (MS - Free Report) fourth-quarter 2017 adjusted earnings of 84 cents per share, which handily outpaced the Zacks Consensus Estimate of 77 cents. The reported figure was 14% above the prior-year quarter.
Shares of Morgan Stanley have gained more than 1.5% in pre-market trading, largely driven by impressive investment banking performance. The stock’s price performance after the full day’s trading will give a better indication about investors’ sentiments.
Solid underwriting fees (up 42%) and higher net interest income were largely responsible for the improved results. Also, the company’s capital ratios remained strong.
However, as expected, fixed-income, currency and commodities income (down 45%) and equity trading income declined (down 2%). Also, lower advisory fees were an undermining factor.
After considering a net discrete tax provision, net income applicable to Morgan Stanley was $686 million or 29 cents per share.
For 2017, adjusted earnings of $3.60 per share beat the Zacks Consensus Estimate of $3.58. Also, it was up 25% year over year. After considering a net discrete tax provision, net income available to common shareholders was $6.2 billion or $3.09 per share.
Rise in Investment Banking Aids Revenues, Costs Rise
Net revenues amounted to $9.5 billion, a rise of 5% from the prior-year quarter. In addition, it surpassed the Zacks Consensus Estimate of $9.1 billion.
For 2017, net revenues were up 10% from the prior year to $37.9 billion. The figure was above the Zacks Consensus Estimate of $37.5 billion.
Net interest income was $995 million, up 13% from the year-ago quarter. This was largely driven by a rise in interest income. Also, total non-interest revenues of $8.5 billion grew 5% year over year, primarily supported by improvement in investments.
Total non-interest expenses were $7 billion, up 4% year over year. The rise was due to a 5% increase in compensation and benefits costs.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $1.2 billion, down 7% year over year. Net revenues of $4.5 billion fell 2% from the prior-year quarter. The decline was mainly due to lower trading income and advisory revenues, partially offset by increase in underwriting income.
Wealth Management: Pre-tax income from continuing operations totaled $1.2 billion, a jump of 29% on a year-over-year basis. Net revenues were $4.4 billion, up 10% year over year, driven by higher asset management fee revenues, net interest income and transactional revenues.
Investment Management: Pre-tax income from continuing operations was $80 million, surging significantly from the year-ago quarter. Net revenues were $637 million, a rise of 27% year over year. The increase reflected higher investment revenues and asset management fees.
As of Dec 31, 2017, total assets under management or supervision were $482 billion, up 16% on a year-over-year basis.
Strong Capital Position
As of Dec 31, 2017, book value per share was $38.54, up from $36.99 as of Dec 31, 2016. Tangible book value per share was $33.48, up from $31.98 as of Dec 31, 2016.
Morgan Stanley’s Tier 1 capital ratio Advanced (Transitional) was 20.0%, up from 19.0% in the year-ago quarter. Tier 1 common equity ratio Advanced (Transitional) was 17.5% compared with 16.9% in the prior-year quarter.
Share Repurchases
During the reported quarter, Morgan Stanley bought back around 25 million shares for nearly $1.25 billion. This was part of the company's 2017 capital plan.
Our Take
Morgan Stanley’s initiatives to offload its non-core assets to lower balance-sheet risks and shift focus on less capital-incentive operations like wealth management are commendable. Further, steady improvement in investment banking income will support its top line. However, a decline in bond trading fees owing to low client activity is an issue.
Morgan Stanley Price, Consensus and EPS Surprise
Morgan Stanley Price, Consensus and EPS Surprise | Morgan Stanley Quote
Currently, Morgan Stanley has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among banking giants, JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corp. (BAC - Free Report) and Citigroup Inc. (C - Free Report) have already come out with their fourth-quarter results. The performance of these companies was impressive despite the trading slump.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>