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Morgan Stanley (MS) Q1 Earnings & Revenues Beat, Stock Up

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Despite weak trading and investment banking performance, Morgan Stanley’s (MS - Free Report) first-quarter 2019 adjusted earnings of $1.33 per share outpaced the Zacks Consensus Estimate of $1.17. The figure was down 8% year over year. Results in the reported quarter exclude discrete tax benefits.

Shares of Morgan Stanley have risen 2.5% in pre-market trading as both earnings and revenues declined lower than expected. The stock’s price performance after the full day’s trading will give a better indication about investors’ sentiments.

Higher net interest income, driven by rise in loan balance and higher rates, and investments supported the top line. Further, operating expenses witnessed a decline. Also, the company’s capital ratios remained strong.

Nonetheless, as expected, trading revenues declined as both equity and fixed income trading income fell 21% and 9%, respectively. Additionally, overall investment banking performance was disappointing. Underwriting revenues (both equity and fixed income) declined 22% and advisory fees fell 29%.

Net income applicable to Morgan Stanley was $2.43 billion, down 9% from the prior-year quarter.

Trading, Investment Banking Hurt Revenues, Costs Down

Net revenues amounted to $10.29 billion, a decline of 7% from the prior-year quarter. However, the top line beat the Zacks Consensus Estimate of $10 billion.

Net interest income was $1.01 billion, up 4% from the year-ago quarter. This was largely due to a rise in interest income, partially offset by higher interest expenses.

Total non-interest revenues of $9.27 billion fell 8% year over year, primarily due to dismal investment banking and trading performance.

Total non-interest expenses were $7.33 billion, down 4% year over year.

Decent Segmental Performance

Institutional Securities: Pre-tax income from continuing operations was $1.60 billion, decreasing 24% year over year. Net revenues of $5.20 billion fell 15%. The decline was mainly due to lower trading income and investment banking revenues.

Wealth Management: Pre-tax income from continuing operations totaled $1.19 billion, up 2%. Net revenues were $4.39 billion, relatively stable year over year, as a decline in transactional revenues was offset by higher asset management revenues and net interest income.

Investment Management: Pre-tax income from continuing operations was $174 million, up 18% from the year-ago quarter. Net revenues were $804 million, up 12%. The increase was mainly driven by stable asset management fees and higher investment revenues.

As of Mar 31, 2019, total assets under management or supervision were $480 billion, down 2% on a year-over-year basis.

Strong Capital Position

As of Mar 31, 2019, book value per share was $42.83, up from $39.19 as of Mar 31, 2018. Tangible book value per share was $37.62, up from $34.04 a year ago.

Morgan Stanley’s Tier 1 capital ratio Advanced was 19.6% compared with 18.3% in the year-ago quarter. Tier 1 common equity ratio Advanced was 17.3% compared with 16.0% a year ago.

Share Repurchase Update

During the reported quarter, Morgan Stanley bought back around 28 million shares for nearly $1.2 billion. This was part of the company's 2018 capital plan.

Our Viewpoint

Morgan Stanley’s initiatives to offload its non-core assets to lower balance sheet risks and focus on less capital-incentive operations like wealth management are commendable. However, slump in investment banking and trading remains a major concern. This is expected to have an adverse impact on its profitability.

Morgan Stanley Price, Consensus and EPS Surprise


Morgan Stanley Price, Consensus and EPS Surprise | Morgan Stanley Quote

Currently, Morgan Stanley carries a Zacks Rank #5 (Strong Sell).

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

Among banking giants, JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) and Citigroup (C - Free Report) have already come out with first-quarter results. Similar to Morgan Stanley, financials of these companies were hurt by dismal investment banking and trading performance.

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