Morgan Stanley reported better than expected first quarter earnings before the bell Wednesday despite much lower-than-expected revenue from investment banking. MS posted a profit of $2.98 billion, or $1.70 a share ahead of $1.63 a share estimates. Revenue declined 2% to $14.52 billion in the quarter but beat expectations of $13.97 billion. Shares however fell 3% in premarket trading with concerns about the economy and future deals. Investment banking revenue, including fees from mergers and acquisitions, fell 24% from a year ago to $1.25 billion in the first quarter. Wealth-management revenue rose 11% and accounted for about 45% of total company revenue in the quarter.
$MS released earnings after major competitor Goldman Sachs and four of the largest U.S. lenders PNC, JP Morgan, Wells Fargo, Citigroup and Bank of America.
Morgan Stanley Q1 2023 Earnings
Q1 2023 earnings release at 7:30 a.m. ET; conference call at 9:30 a.m. ET
- Net income $2.98 billion, or $1.70 a share. Analysts had expected $1.63 a share, according to estimates compiled by FactSet.
- Revenue declined 2% to $14.52 billion in the quarter, but beat expectations of $13.97 billion.
- Investment banking revenue, including fees from mergers and acquisitions, fell 24% from a year ago to $1.25 billion in the first quarter.
- Wealth-management revenue rose 11%. The unit accounted for about 45% of total company revenue in the quarter.
- Retail-trading customers 8.1 million at the end of March, up from 7.6 million a year prior. The average daily number of retail trades the company handled was about 831,000, down from more than 1 million a year ago.
MS: Stock Market Reaction
- $89.01 ▼ -0.84 (-0.93%) today
- $89.01 ▲ +0.15 (+0.17%) past year
- $89.01 ▲ +37.21 (+71.75%) past 5 years
- 52wk High $100.99
- 52wk Low $72.05
“We reported solid fourth-quarter results amidst a difficult market environment,” Gorman said in a statement. “Overall, 2022 was a strong year for the firm . . . Wealth management provided stability with record revenues and over $310 billion in net new assets.”
Investment Banking Losses
We had been warned about banking losses, investment bankers’ clients are putting off stock and debt sales while waiting for a warmer reception from investors as the Fed raises rates aggressively.
Investment banking revenue fell 24% at Morgan Stanley. Investment banking was down across the industry as well, with revenue falling 19% at JPMorgan and 26% at Goldman.
“Investment banking activity continued to be constrained,” Morgan Stanley Chief Executive
James Gorman said in a statement.
Higher rates increase margins but at a cost.
The Federal Reserve’s rate-boosting campaign, producing more revenue as rates rise, allowing banks to generate more profit from their core activities of taking in deposits and making loans. With higher interest rates from the Federal Reserve’s aggressive rate hiking revenues are expected to rise from a year earlier. Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out.
However, there is a price for this, the clearest is the housing market which with the collapse in affordability through higher rates and inflation has dropped off dramatically ion activity. For banks this means the fee income from home lending has fallen right off.
Last month by the collapses of Silvergate Capital Corp., Silicon Valley Bank and Signature Bank riled financial markets. Morgan Stanley provided $2.5 billion in uninsured deposits to First Republic Bank last month, in an effort with other large U.S. banks to try to save First Republic from a run on deposits.
E Trade and Eaton Vance Aquisition’s
Morgan Stanley through E*Tradeicontinued to attract retail-trading customers. Those customers numbered 8.1 million at the end of March, up from 7.6 million a year prior. However, those customers are trading less often. The average daily number of retail trades the company handled was about 831,000, down from more than 1 million a year ago.
Morgan Stanley’s acquisition of E*TRADE continues reward the banks as the record-setting stock market is drawing in waves of new capital to the online brokerage company. The bank spent $13 billion to acquire E-Trade to further its reach with the mass affluent, and $7 billion to buy Eaton Vance to bulk up its investment management business.
On Feb. 20, 2020, Morgan Stanley agreed to acquire E-Trade Financial (ETFC) in a $13 billion, all-stock deal. The Wall Street investment bank said the purchase would add E-Trade’s consumer-oriented business to its advisor-driven model. The deal closed in Q4, 2020
Wealth management, which Morgan Stanley expanded through the acquisition of ETrade, increased revenues.
From The TradersCommunity Research Desk
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