Better-than-expected capital markets performance drove Morgan Stanley’s (MS - Free Report) fourth-quarter 2019 adjusted earnings of $1.20 per share, which outpaced the Zacks Consensus Estimate of 98 cents. Also, the figure jumped 64% from the year-ago quarter. Results for the reported quarter include severance costs of $172 million and exclude net discrete tax benefit.
Shares of Morgan Stanley jumped more than 5.5% in pre-market following an unexpected improvement in fixed income trading income. The stock’s price performance after the full day’s trading will give a better picture.
Morgan Stanley recorded a rise in both trading and investment banking revenues. Specifically, fixed income trading revenuessurged 126%, while equity trading income was relatively stable. Overall trading revenues grew 28%.
Now coming to investment banking performance, underwriting income was up 35%. The improvement was driven by a rise in both equity and fixed income underwriting revenues, which were up 31% and 39%, respectively. On the other hand, as expected, advisory fees declined 11%.
Further, higher net interest income, driven by rise in loan balance (up 11%) and lower interest expenses, supported the top line.
However, operating expenses witnessed a rise, mainly due to higher compensation costs (up 38%).
Net income applicable to common shareholders for the quarter was $2.09 billion, increasing 53%.
For 2019, adjusted earnings of $4.98 per share grew 8% year over year and outpaced the Zacks Consensus Estimate of $4.86. Net income applicable to common shareholders was $8.51 billion, up 4%.
Trading, Investment Banking Aid Revenues, Costs Rise
Net revenues for the quarter were $10.86 billion, up 27% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $9.52 billion.
For 2019, net revenues grew 3% to $41.42 billion. It also surpassed the consensus estimate of $40.08 billion.
Net interest income was $1.43 billion, jumping 45% from the year-ago quarter. This was largely due to a 19% fall in interest expenses.
Total non-interest revenues of $9.42 billion jumped 25% year over year.
Total non-interest expenses were $8.12 billion, up 21%.
Impressive Quarterly Segment Performance
Institutional Securities: Pre-tax income from continuing operations was $1.13 billion, increasing 44% year over year. Net revenues were $5.05 billion, up 32%. The rise was mainly driven by higher trading income, investment banking revenues and investment revenues.
Wealth Management: Pre-tax income from continuing operations totaled $1.16 billion, up 15%. Net revenues were $4.58 billion, up 11% year over year as rise in transactional revenues and asset management revenues were partially offset by lower net interest income.
Investment Management: Pre-tax income from continuing operations was $447 million, surging substantially from $74 million in the year-ago quarter. Net revenues were $1.36 billion, soaring 98%. The increase was mainly driven by rise in asset management fees and investment revenues.
As of Dec 31, 2019, total assets under management or supervision were $552 billion, up 19% on a year-over-year basis.
Strong Capital Position
As of Dec 31, 2019, book value per share was $45.82, up from $42.20 as of Dec 31, 2018. Tangible book value per share was $40.01, up from $36.99.
Morgan Stanley’s Tier 1 capital ratio was 18.6% compared with 19.2% in the year-ago quarter. Tier 1 common equity ratio was 16.4%, down from 16.9%.
Share Repurchase Update
During the fourth quarter, Morgan Stanley repurchased shares worth $1.5 billion. This was part of the company's 2019 capital plan.
Morgan Stanley’s focus on less capital-incentive operations like wealth management is commendable. However, mounting costs pose a concern.
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
Improved trading and underwriting performance drove Bank of America’s (BAC - Free Report) fourth-quarter 2019 earnings of 74 cents per share, which surpassed the Zacks Consensus Estimate of 68 cents. Also, the figure was up 6% from the prior-year quarter.
Better-than-expected trading performance and rise in mortgage banking fees drove JPMorgan’s (JPM - Free Report) fourth-quarter 2019 earnings of $2.57 per share, which handily outpaced the Zacks Consensus Estimate of $2.32.
Goldman Sachs (GS - Free Report) reported a negative earnings surprise of 9.8% in fourth-quarter 2019. The company posted earnings per share of $4.69, missing the Zacks Consensus Estimate of $5.20. Further, the bottom-line figure compares unfavorably with earnings of $6.04 per share recorded in the year-earlier quarter.
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