Morgan Stanley Trading Profits and Underwriting Fees Boost Earnings

Morgan Stanley on Wednesday reported record second quarter 2018 earnings before the bell beating analyst expectations. $MS followed the other major banks with surging trading and wealth revenues.

Morgan Stanley on Wednesday reported record second quarter 2018 earnings before the bell beating analyst expectations. $MS followed the other major banks with surging trading and wealth revenues.


Morgan Stanley’s second-quarter 2018 earnings of $1.30 per share beat the consensus estimate of $1.08 and up 49%  from the prior-year quarter. Excluding net discrete tax benefits of $88 million in the reported quarter, adjusted earnings were $1.25 per share. Net income applicable to Morgan Stanley was $2.4 billion, up 39% year over year. Net revenues were $10.6 billion, a rise of 12% from the prior-year quarter ahead of the consensus estimate of $10 billion.

Reaction > Morgan Stanley NYSE: $MS

Pre-market 50.78 +1.78 (3.62%)


  • Equity trading income was up 15%
  • Fixed income, currency and commodities income up 12%
  • increase in equity underwriting fees to be up 34%
  • Advisory income up 23%
  • Debt underwriting revenues rose 7%
  • Net interest income was $906 million up 21% from the year-ago quarter. This was largely driven by a rise in interest income, partially offset by higher interest expenses.
  • Total non-interest revenues of $9.7 billion grew 11% year over year, primarily supported by improvement in trading and investment banking.
  • Total non-interest expenses were $7.5 billion, up 9% year over year.

MS Earnings Q2 18

Q2 Segment Performance

Institutional Securities:

Pre-tax income from continuing operations was $1.8 billion, increasing 26% year over year. Net revenues of $5.7 billion grew 20% from the prior-year quarter. The rise was mainly driven by higher trading income, advisory revenues and equity underwriting revenues.

Wealth Management:

Pre-tax income from continuing operations totaled $1.2 billion, up 9% on a year-over-year basis. Net revenues were $4.3 billion, increasing 4% from the prior-year quarter, driven by higher asset management fee revenues and net interest income, partly offset by a decline in transactional revenues.

Investment Management:

Pre-tax income from continuing operations was $140 million, down 1% from the year-ago quarter. Net revenues were $691 million, a rise of 4% year over year. The increase reflected higher asset management fees, partly offset by a fall in investment revenues. As of Jun 30, 2018, total assets under management or supervision were $474 billion, up 9% on a year-over-year basis.

Capital Position

As of Jun 30, 2018, book value per share was $40.34, up from $38.22 as of Jun 30, 2017. Tangible book value per share was $35.19, up from $33.24 a year ago. Morgan Stanley’s Tier 1 capital ratio Advanced (Fully Phased-in) was 18.9% compared with 18.2% in the year-ago quarter. Tier 1 common equity ratio Advanced (Fully Phased-in) was 16.5% compared with 16.0% a year ago.

Share Buybacks and Dividends

During the reported quarter, Morgan Stanley bought back around 24 million shares for nearly $1.25 billion. This was part of the company’s 2017 capital plan. Further, following the Federal Reserve’s approval of its capital plan, Morgan Stanley announced a 20% hike in quarterly dividend to 30 cents per share. Further, the company authorized $4.7 billion worth of share buyback plan. 

Morgan Stanley First Quarter Earnings Recap

Earnings Highlights

  • Stock-trading revenue increased by 27% from a year earlier to $2.56 billion,
  • Fxed-income trading revenue increased by 9% from last year to $1.87 billion
  • investment management rose by 18% 
  • Wealth management rose by 8% 
  • IB fees rose by +7% 
  • Expenses increased 10% y-o-y and grew 9% linked quarter, resulting in 400bps of y-o-y positive operating leverage.
  • Comp ratio was 44%, down from 45% in the prior quarter and 46% in 1Q17.
  • It posted an ROE of 14.9% and ROTCE of 17.2%.

Share Repurchases

For the 3rd straight quarter, it repurchased $1.25mn shares, a pace we expect to finish its CCAR 2017 plan in 2Q18.

The bank rally had been fueled by expectations for easier regulations including a possible repeal of DoddFrank and infrastructure spending. The Federal Reserve decision to raise rates has also helped banks.  The new surge in home prices has also buoyed optimism for the mortgage business and banks profits thereto. Tax cuts, a stronger economy and higher interest rates have helped banks’ earnings. Bank of America reported results on Monday.

UPDATE: Barclays Upgrades, Morgan Stanley Issues Note After Earnings

  • Stock Rating: Equal Weight
  • Industry View: Positive
  • Price Target: USD 63.00
  • Price (18 Apr 2018) USD 53.26
  • EPS FY1 (E) 4.90EPS FY2 (E)5.35
  • Market Cap (USD bn) 94.4805

Bottom line:

Broad-based revenues growth, positive operating leverage, and a lower comp ratio drove EPS above consensus and pushed its ROE toward the 15% area. Relative to consensus, revenues in trading (both FICC and equities), IB (advisory, ECM and DCM) and investment management all came in above expectations, while wealth management was below (though its pre-tax margin and flows were solid).

After unveiling new targets including a 10-13% ROE (11.5-14.5% ROTCE), a 26-28% WM pre-tax margin and a sub-73% efficiency ratio on last quarter’s conference call, MS exceeded all these metrics on the first try. Trading at 1.6x tangible book, the market seems to reflect expectations of improved performance. Still, language regarding capital distribution in CCAR 2018 appeared more cautious.


Following better-than-expected results this quarter, we are raising our 2018 EPS estimate by $0.25 to $4.90 as volatility to start the year has been supportive of trading revenues. We are raising our 2019 EPS estimate by $0.10 to $5.35.

Our price targets is $63 (+$1)

Morgan Stanley’s results follow earnings on Friday from following money center banks JPMorgan Chase $JPM. Wells Fargo $WFC, PNC Financial $PNC and  $C.  Bank of America $BAC and Goldman Sachs $GS reported bouyant results on Monday and Tuesday..

Source: MS, AlphaStreet

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