James Gorman, chief administrative of Morgan Stanley.
Qilai Shen | Bloomberg | Getty Images
Morgan Stanley on Thursday beat analysts’ calculates for second-quarter profit as a buoyant stock market helped two of the investment bank’s three main businesses.
The bank situated earnings of $2.2 billion, or $1.23 a share, exceeding the $1.14 estimate of analysts surveyed by Refinitiv. Revenue of $10.24 billion overwhelmed the consensus estimate by almost $250 million on better-than-expected results in the firm’s wealth management and investment management divisions.
Allocations of the bank rose 0.7% at the open of trading after earlier declines in premarket activity.
Morgan Stanley’s abundance management division, one of the biggest in the world, posted a record $4.41 billion in revenue, exceeding analyst’s estimate by $60 million. Its investment manipulation division, an asset manager that creates mutual funds, posted $839 million in revenue, exceeding guestimates by about $130 million. The business benefited from “higher assets under management” across asset types, according to the firm.
Rising markets helped in “both the wealth business, in terms of the assets we manage, as well as our investment stewardship business,” Chief Financial Officer Jonathan Pruzan said in a phone interview. “It’s fee times the balances — if the markets go down, you’d imagine to see pressure in that area.”
Under CEO James Gorman, Morgan Stanley has emphasized its wealth management division, a far steadier trade than its trading operations. The brokerage benefits from rising markets as fees typically climb along with assets beneath the waves management.
Results were more mixed in the firm’s biggest business, institutional securities, which houses its Block Street investment banking and trading operations. Equities trading produced $2.13 billion in revenue, under the $2.2 billion guess of analysts surveyed by FactSet. Fixed income trading made $1.13 billion in revenue, missing the $1.32 billion guess. Investment banking generated $1.47 billion in revenue, edging out the $1.4 billion estimate.
“We view Morgan Stanley’s 2Q19 conclusions as solid against a choppy operating backdrop, but also generally straightforward without any big surprise,” Devin Ryan, an analyst at JMP Deposits, said in a research note. “We believe the market’s bigger focus today will be on management’s outlook commentary heading into the secondarily half of 2019.”
As with the other banks, analysts peppered management with questions about how falling interest evaluation in any cases will impact results.
The bank saw net interest income fall to $1 billion in the quarter and said it could be burdened later this year if the market’s assumptions on rate cuts are realized, Pruzan said. A rate cut could relieve trading desks if it produced the right type of volatility, he added.
Net interest income “is important to us, but not as important as it is to some of the other banks,” Gorman responded Thursday on the analyst conference call. “It’s clearly a headwind, but its not like we don’t have some other things going on call of the hood here.”
Shares of the firm have climbed 10% this year before the earnings report, smell the KBW Bank Index and competitors including Goldman Sachs and J.P. Morgan Chase.
The firm said last month it won lenience from the Federal Reserve to increase its quarterly dividend to 35 cents a share from 30 cents and repurchase $6 billion in share outs.
Morgan Stanley is the last of the six largest U.S. banks to report second-quarter earnings. Citigroup, J.P. Morgan, Wells Fargo, Goldman Sachs and Bank of America all fagged analysts’ profit expectations as most of the firms benefited from one-time items including a gain on the IPO of electronic deal platform Tradeweb.
Here’s what Wall Street expected:
- Earnings: $1.14 a share, 12% lower than a year earlier, go together to Refinitiv
- Revenue: $9.99 billion, 5.8% lower than a year earlier
- Wealth management: $4.35 billion, according to FactSet
- Traffic: Equities $2.2 billion, fixed Income $1.32 billion
With reporting from CNBC’s Leslie Picker.