Wall Street Goes 0-2 As IB Slump Dents Results

With two reports on the books for second quarter earnings, Wall Street was 0 for 2.

On the heels of underwhelming results from JPMorgan, which missed estimates on a number of fronts and suspended buybacks, Morgan Stanley likewise came up short.

Revenue of $13.13 billion missed estimates, as did adjusted EPS of $1.44. James Gorman described “a more volatile market environment than we have seen for some time.”

Consistent with a very challenging backdrop for fees, IB was weak at Morgan Stanley, just as it was at JPMorgan. Equity underwriting plunged 86% from the same quarter a year ago. $148 million in revenue undershot consensus by a country mile. Analysts expected $251 million.

Overall, IB revenue of $1.07 billion (figure above) was somewhere between $200 million and $400 million short of consensus.

The bank noted lower levels of completed M&A in advisory (where revenue of $598 million was nowhere near estimates), subdued issuance in equities amid market “uncertainty” and cited the macro backdrop for the decrease in debt underwriting, which fell 49% from Q2 of 2021.

Mercifully, trading results were decent. Unlike JPMorgan, Morgan Stanley managed a beat in FICC, where revenue rose 49% YoY to $2.5 billion, easily topping estimates ($2.2 billion). Equities sales and trading revenue of $2.96 billion was essentially in line. At least Gorman can say his FICC traders benefited from Q2’s volatility.

The bank’s credit loss provision was more than double estimates, at $101 million. That was up 77% from Q1. Comp expenses were lower than expected, but Morgan took a $200 million hit related to a Street-wide SEC-CFTC probe into the use of unapproved personal devices, apps and emails. Wealth management net revenue of $5.74 billion was short, and net interest income was a beat, albeit not a large one.

The bottom line from the first of this quarter’s big bank earnings was straightforward: The IB slowdown was worse than expected, and the benefit of heightened volatility for trading desks was uneven.

There’s no reason to believe that’ll change once Citi, Goldman and BofA report, although constructive commentary from BofA on the US consumer and/or any kind of blockbuster from Goldman’s traders could conceivably turn the tide. As of Thursday, though, risks appeared skewed to the downside.