Morgan Stanley Posts Solid Results, But Provisions Surge

Morgan Stanley rounded out big US bank earnings Wednesday with a solid set of numbers marred, perhaps, by elevated provisions and higher expenses.

Revenue of $14.5 billion easily topped consensus, but the bank’s provision for losses was $234 million, more than double the expected $99 million. Both non-interest and compensation expenses were considerably higher than expected.

FICC was a beat. $2.58 billion in revenue was comfortably ahead of consensus, and left Goldman as the sole underperformer for the quarter.

Declines in currencies and commodities were offset by “higher revenues in rates supported by interest rate volatility,” Morgan remarked. There again: Wall Street’s titans benefited from last month’s tumultuous environment.

Equities trading revenue, which Morgan takes pride in, missed. $2.73 billion was short of the $2.86 billion analysts saw.

Needless to say, IB was subdued, but revenue of $1.25 billion was nevertheless better than expected. $202 million from equity underwriting was the smallest haul in a very long time. Debt underwriting was the highest in a year.

On the call, James Gorman reiterated that dealmaking, like the Norwegian Blue, is just resting. Underwriting and advisory are “delayed,” he said, not “dead.”

Wealth management had $110 billion in net new assets during Q1. The bank cleared the bar there with revenue of $6.56 billion.

Those of you following along closely might recall that Morgan Stanley notched a record for wealth management revenue in Q4. Q1’s sum wasn’t far from that high mark.

Net interest income in wealth management rose 40% YoY.

Firmwide, NII of $2.35 billion was lower than the $2.5 billion consensus expected. Sharon Yeshaya told analysts the bank isn’t expecting quarterly NII increases.

As for the provision, the bulk of the $234 million came from Institutional Securities, where a $189 credit loss provision was “primarily related to commercial real estate,” the bank said. That’ll surely garner some attention given the focus on CRE in 2023. Morgan Stanley also mentioned a generic “deterioration in the macroeconomic outlook” compared to a year ago.

Commenting further on the call, Gorman said he expects at least two more Fed hikes. He doesn’t expect any rate cuts this year. As for last month’s regional banking drama, Gorman said it’s “not remotely” comparable to 2008.