Another quarter, another impressive beat from Morgan Stanley.
On the bottom line, net income was $2.4 billion, a near 40% YoY increase and easily ahead of consensus. Revenue of $10.61 billion handily topped consensus ($10.08 billion), coming in ahead of even the highest estimate, which as far as I can tell was $10.5 billion.
IB revenue was $1.79 billion, well ahead of the expected $1.42 billion and also an improvement from an already solid Q1. Corporate activity was strong, with advisory revenues rising to $618 million versus $504 million a year ago. On Tuesday, Goldman’s M&A results showed an improvement from a lackluster Q1, but this is two quarters in a row of solid results on that front from Morgan.
Throw in equity underwriting revenues of $541 million (up from $405 million in Q2 2017) and FI underwriting revenues of $540 million, and you come up with IB revenue that’s the highest it’s been in at least a decade.
Trading was also strong for James Gorman. Sales and trading revenue in equities – where the bank dominates – clocked in at $2.5 billion in Q1, up from $2.2 billion a year ago. That comes on the heels of a Q1 during which the equities unit contributed $2.6 billion in revenue against consensus of just $2.15 billion. Consensus was looking for $2.3 billion from the equities division in Q2, so again, that’s a beat.
The real surprise for Morgan in Q1 was FICC, where revenue came in at $1.9 billion, again well ahead of estimates ($1.7b) and in Q2, the number was $1.4 billion, versus $1.2 billion a year ago. Like last quarter, Morgan cites strength in commodities, but unlike Q1, revenue in credit products seemed to have exceeded expectations.
So basically, things are looking good for Ted Pick.
As far as wealth management goes, net revenues were $4.3 billion in Q2, and pre-tax margin was 26.8%, that latter figure is an improvement from an already solid Q1 (26.5%) and is also considerably better than expectations. But the headline looks like it might be just shy of what some folks were expecting.
But any slight miss in wealth management and investment management is likely to be forgiven by investors given the bank bested its Wall Street rivals in IB fees and FICC in terms of YoY growth rates.
Speaking of rivals, here’s what Goldman thinks of Morgan’s results:
Although investors could question the sustainability of the trading results, given typical capital markets seasonality, we believe that they appear generally broad-based, both by product and geography. Robust results were driven by: 1) Equities of $2.5bn, up 15%YoY and above GSe/consensus of $2.3bn; 2) FICC results of $1.4bn vs. GSe/consensus at $1.2bn/$1.3bn; 3) Investment Banking results of $1.7bn above our/consensus estimates of $1.4bn; and 4) despite weaker transactional revenues and slower NII growth, the WM PT margin of 26.8% was 130bps above GSe.
The great convergence:
Good luck David Solomon…
Morgan is the new Goldman.
— Luke Kawa (@LJKawa) July 18, 2018