Key Takeaways:
Morgan Stanley reported record second-quarter revenue of $21.35 billion, beating analyst estimates by $1.72 billion on strength across its main business lines.
"The results were driven by strength across institutional securities, wealth management and investment management," the bank said in its earnings release.
Net revenue of $21.35 billion for the three months ended June 30 compared with the $19.63 billion consensus estimate compiled by Bloomberg. Diluted earnings per share of $3.46 topped the $2.93 average analyst projection by 18 percent. The prior-year comparison was not disclosed.
Shares of Morgan Stanley pulled back more than 1 percent on Wednesday following the release, as investors weighed the record results against elevated expectations. The earnings beat adds to a strong quarter for Wall Street banks, with JPMorgan Chase, Goldman Sachs and Bank of America all reporting better-than-expected results.
The institutional securities division, which includes investment banking and trading, was a key contributor to the record top line. A pickup in merger advisory and equity underwriting drove investment banking fees higher, while fixed-income and equity trading added to revenue. The investment banking recovery has been a key theme this earnings season, with Morgan Stanley's advisory and underwriting businesses benefiting from improved CEO confidence and a more favorable environment for dealmaking.
The wealth management business, a strategic priority under Chief Executive Ted Pick, delivered steady fee-based income from its large advisor network. The division continued to attract net new assets, contributing to the stable revenue stream. The investment management unit also added to the record quarter. The bank did not disclose its net interest margin, return on equity or provision for credit losses in the preliminary release.
The results come during a broader earnings season where S&P 500 companies are expected to report nearly 24 percent year-over-year earnings growth, according to FactSet data. Analysts had raised their estimates during the quarter, making beats harder to achieve. Citigroup reported its best quarterly revenue in a decade, while Goldman Sachs rose sharply after its release. Investor reactions were uneven across the sector, however. Citigroup and Wells Fargo shed 5.3 percent and 2.7 percent respectively after their releases, while JPMorgan Chase and Bank of America advanced.
Heading into the reporting period, analysts on average expected S&P 500 earnings expanded by almost 24 percent in the second quarter from the year-earlier period, FactSet data shows. If confirmed, it would mark the second straight quarter of year-over-year earnings growth faster than 20 percent. The elevated bar means companies must not only beat consensus estimates but also exceed the higher "whisper numbers" circulating among institutional investors, according to Wells Fargo Investment Institute strategist Scott Wren.
The 18 percent EPS beat and record revenue show that Morgan Stanley's diversified model is capturing upside from both trading and advisory activity. Investors will watch the company's forward guidance and any commentary on the deal pipeline for signs of sustained momentum.
This article is for informational purposes only and does not constitute investment advice.
