Q4 wasn’t particularly kind to Morgan Stanley.
FICC sales and trading revenue came in at just $564 million in the final quarter of 2018, a grievous miss versus estimates of $822.5 million and a true testament to just how much trouble Wall Street had during the “unfavorable market making conditions” that prevailed during Q4. That FICC number represented a 30% drop, the worst FI result on the Street.
Morgan also missed on the top and bottom lines, as adjusted EPS came in below even the lowest estimate. The top line was woefully short.
All in all, a big let down versus 2018’s other quarters, which were generally impressive for Gorman.
Fast forward to Q1 and, amid bank earnings that have so far been mixed, Morgan seems to have cobbled together something that looks pretty decent at first glance.
Adjusted EPS came in at $1.33 for Q1, better than the $1.17 consensus was looking for and above the highest estimate ($1.28).
Net revenue fell 7% on year, but was a solid beat at $10.29 billion versus consensus $9.91 billion. The highest estimate was $10.34 billion, so Morgan very nearly hit the top end of the range.
Equities doesn’t look great at first glance. Revenue there dove 21% YoY to $2.02 billion, missing estimates of $2.07 billion. The bank cites “lower client balances and decreases in derivatives and cash equities on lower client activity compared with a year ago.” As we’ve said for every other bank this quarter, you do have to consider what was going on in Q1 2018 when you think about these trading numbers.
FICC was a beat. Revenue there was $1.71 billion versus estimates of $1.59 billion. Weakness in rates and FX was offset by credit products and risk management.
IB revenue of $1.24 billion missed slightly. It doesn’t sound like underwriting was particularly strong in equities or FI. Morgan also mentions “lower M&A fee realizations”.
In wealth management, the pretax margin was 27.1% for the quarter – that’s certainly a sequential improvement. The bank calls it “strong expense management.” Net revenue was $4.49 billion, up slightly YoY, although asset management revenues themselves were flat. Net interest income rose 6% thanks to higher rates.
Compensation expenses were much higher than expected at $4.65 billion versus estimates of $4.37 billion. That $4.65 billion figure is above even the highest estimate.
Gorman sounds ok with this, calling the results “solid despite a slow start to the year” following Q4 “turbulence.” The market likes it too, for now anyway. The shares are up handily in the premarket.
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