According to the latest news by Bloomberg, Morgan Stanley’s Q1 results were a surprise. The last of the major US banks to report their first quarter’s earnings, posted a record breaking result, which caused the firm’s stocks to climb 3% in early trading. However, post that early morning jump, the bank’s shares settled and ended the day flat.
Thanks to a surprise jump in fixed-income trading and a greater-than-expected equities performance, Morgan Stanley posted revenues of $11 billion, the highest in the bank’s history. The company’s first quarter’s profit was also boosted by Trump’s tax reforms, which helped profits also rise to all-time highs.
According to Reuters’ report, the overall quarterly profit for the bank rose by 40% year-on-year to $2.6 billion, which is $1.45 a share. This figure topped the market’s target estimate of $1.25 a share. Fixed income trading revenue went up by 9% while investment banking revenue jumped 7% to $1.51 billion. The investment banking revenue results beat market consensus expectation of a 1.4% drop. Trading revenue for the quarter went up by a huge 26% to $4.4 billion, which beat even the bank’s arch rival Goldman Sachs’ performance.
Morgan Stanley’s total revenue rose by 14% to $11.1 billion, vis-à-vis the market consensus target of $10.4 billion. According to data compiled by Bloomberg Finance, the bank is currently the No. 1 advisor for the year for mergers and acquisitions.
The company’s CEO James Gorman has been leading the effort to help recover from the 2008 financial crisis that left the bank reeling. Gorman joined Morgan Stanley in 2006 as the head of wealth management and took over as CEO in 2010. Since then, he has focused on risk reduction, offloading underperforming businesses and developing businesses that can be relied on to give steadier revenue.
Since he took over, the bank’s wealth management business has grown from a quarterly revenue of $1.25 million to an average of $4.4 billion in 2017’s last quarter. Additionally, Morgan Stanley was generating a 2% return on equity. In comparison, the bank just delivered a 14.9% ROE in the last quarter.
Despite all the good news, executives at Morgan Stanley are striking a cautious note. They have warned that the rest of the year may not be so spectacular. The first quarter was so strong for multiple reasons. Major economies expanded across the world, the interest rates in the US rose and volatility worked in favor of the stock market. Added to that was a huge boost thanks to the new US tax reforms.
Unfortunately, the first few days of the second quarter have been clouded with rising geopolitical tensions, conflicts of opinion about the direction of Treasuries yields as well as an escalating trade war between the world’s two largest economies, the US and China. All these factors do not bode well for trading and markets in general.
However, Gorman said that he had prepared for the eventuality of the markets are not doing well. He stated that the bank can still generate up to $7.5 billion in revenues as a worst-case scenario. This is because he has invested in developing steadier and more consistent streams of income for the bank, especially in wealth management.
The market analysts responded positively to Morgan Stanley’s results, with Oppenheimer’s researcher Chris Kotowski stating that the bank had beat estimates in almost all of its business lines.
Morgan Stanley’s first quarter results follow similarly positive performances from other big banks like JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs.