With its peers on the books, Morgan Stanley was up to bat with Q2 results on Thursday.
On the whole, sales and trading revenue dropped 12% YoY. Like everyone but Goldman, equities revenue disappointed, coming in at $2.13 billion, falling 14% YoY and missing estimates of $2.27 billion. Morgan blames “lower revenues in the financing business reflecting lower client balances and realized spreads”.
FICC revenue was $1.13 billion, a 19% drop from a year ago and a big miss versus expectations. Morgan says that’s a reflection of “a decline in interest rates and lower volatility” – there was no shortage of volatility in rates in Q2, but ok. Morgan says some of the pain was mitigated by “increases in credit products on strong client activity”.
Underwriting revenues were flat in equities and down in fixed income, with the latter attributable to falling loan supply and lower volumes more generally. In equities, the bank cites “strength in IPOs”.
IB revenue topped estimates, despite falling double digits from a year ago.
Overall, the bank describes the performance in Institutional Securities as “solid despite a mixed market backdrop”. Although “solid” is in the eye of the beholder in most cases, it’s not entirely clear that’s an accurate description here.
In any case, moving along, wealth management revenue rose nearly 2% YoY to $4.41 billion, which looks like a beat. Pre-tax margin there was 28.2%, and pre-tax income of $1.2 billion is a record. Notably, net interest income in WM fell 3% thanks to a rising tide of mortgage securities prepayment amortization expenses.
Investment Management added $839 million in revenue for the bank, up 21% from a year ago. Pre-tax income there was nearly $200 million, versus $140 million in the period last year.
The headlines were solid beats. Q2 EPS was $1.23 on revenue of $10.24 billion, with that latter figure representing a 3.4% decline YoY.
Expenses were lower and the bank’s effective tax rate rose to 22.6%.
The shares chopped around in the premarket following the numbers.
Gorman delivered a generic assessment that’s just about as bland as these results seem to be at first glance. “We reported solid quarterly results across all our businesses”, he said. “We remain focused on serving our clients and pursuing growth opportunities while diligently managing expenses”. Phoning it in, apparently.
Results
2q2019
