Markets Morgan Stanley

Morgan Stanley Surges Following Blockbuster FICC Performance

This looks like a standout.

Shares of Morgan Stanley surged on Thursday following a set of results that included a FICC number so good as to appear anomalous at first glance.

FICC sales and trading revenues somehow jumped 21% from a year ago to $1.43 billion, versus the $1.13 billion (i.e., a 5% decline) the street was looking for. To be sure, there was no shortage of drama in rates during the period, but that is a fairly remarkable beat, especially considering the bank’s Q2 results reflected lackluster trading results. The bank cited “strong client activity in the credit and rates businesses”.

In equities – where Morgan dominates – sales and trading revenues were basically flat. The bank notes lower revenues in derivatives business and solid performance across all other businesses. Still, at $1.99 billion, the number was ahead of the $1.92 billion consensus was expecting.

At $371 million, the overall beat versus consensus on trading revenue was the largest on the street, by a country mile.

Meanwhile, net interest income for the quarter was $1.22 billion, up 30% YoY. That is a big beat to consensus too. The street was looking for $969.8 million there – the range was $866.0 million to $1.03 billion.

EPS for the quarter was $1.27, and net revenue was $10.03 billion. Both of those prints are better than expected. The range of estimates for the topline was $9.23 billion to $9.93 billion. It was the best third quarter for firmwide revenues in a decade.

IB looks to have topped estimates too. Investment banking revenue of $1.54 billion was up more than 4% YoY, and stacks up favorably against estimates of $1.38 billion. Morgan does note lower equity underwriting revenues on lower volumes in IPOs and follow-on offerings.

In wealth management (obviously crucial for the firm), revenues were flat ($4.36 billion) and basically in line with expectations. The pre-tax margin there was 28.4%.

The shares have risen for six consecutive sessions, and are now poised to make it seven.

Gorman sounds like he’s pretty happy with this. “We delivered strong quarterly earnings despite the typical summer slowdown and volatile markets”, he said Thursday. “Firmwide revenues were over $10 billion for the third consecutive quarter, and we produced an ROE within our target range”, he added. “Our consistent performance shows the stability of our business model. We remain committed to controlling our expenses and are well positioned to pursue our growth initiatives”.

Results

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1 comment on “Morgan Stanley Surges Following Blockbuster FICC Performance

  1. vicissitude

    Meanwhile, as banks are able to take on new greater risk … FDIC isn’t happy, at least not yesterday:

    Given the risks associated with the failure of large regional banks, these measures are unwarranted and misguided. They only increase the challenges posed by the resolution of these institutions and the potential for disorderly failure, and disregard the lessons of the financial crisis.

    Conclusion

    Thank you for the opportunity today to draw attention to the challenges posed by the failure of a large regional bank.

    I have been increasingly concerned that the attention that has been given to the failure of Global Systemically Important Banks since the financial crisis, while entirely appropriate, may have obscured the risks associated with the failure of a large regional bank and permitted an unjustified sense of confidence to develop that the failure of such an institution would not be challenging. I believe the experience during the crisis of a large regional bank failure such as Washington Mutual, and even a smaller $30 billion institution failure such as IndyMac, illustrates the very real risks a regional bank failure would present.

    Going forward, I believe that attention to this issue should be a top priority for the FDIC, for the other federal and state bank regulatory agencies, and for the banking industry.

    https://www.fdic.gov/news/news/speeches/spoct1619.html

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