Morgan Stanley Beats Q2 Estimates, Despite Trading Woes

Morgan Stanley Beats Q2 Estimates, Despite Trading Woes
July 19, 2019


Morgan Stanley (NYSE: MS) reported a Q2 profit that exceeded Wall Street estimates as a strong equity market enabled two of the financial institutions three main divisions post impressive performance. The company’s board also authorized a $6 billion share repurchase program. Shares of the investment bank have soared 10% in 2019 before the earnings release. The stock closed at $44.43, up $0.66 or 1.51% from the prior close.

The New York-based bank reported second-quarter revenues of $10.24 billion, down 3.5% from $10.61 billion in the similar period last year. Analysts were expecting the bank to report revenues of $9.99 billion, down 5.8% on y-o-y basis.

For the quarter ended June 30, 2019, Morgan Stanley’s profit was $2.03 billion, or $1.23 per share, compared with $2.27 billion, or $1.30 per share, in the prior-year period. Analysts polled by Thomson Reuters had anticipated Morgan Stanley to report earnings of $1.14 per share.

Regarding the performance of Wealth and Investment Management Division, CFO Jonathan Pruzan said the stock market rally assisted in “both the wealth business, in terms of the assets we manage, as well as our investment management business. Its fee times the balances — if the markets go down, you’d expect to see pressure in that area.”

Segment-wise, Wealth Management division, reported record revenues of $4.41 billion, surpassing analysts’ estimate by $60 million. The bank’s CEO James Gorman has been giving particular focus on Wealth Management division as he believes that it is a rock-solid business, unlike trading operations. The division charges higher fees for managing assets when markets rally.

The institution’s investment management division, which structures mutual funds, recorded $839 million in revenue, surpassing estimates by nearly $130 million. The business gained from “higher assets under management” across asset classes.

Institutional securities, the bank’s major revenue earner, housing Wall Street investment banking and trading operations, posed mixed results. Equities trading generated $2.13 billion in revenue, missing FactSet analysts’ estimate of $2.20 billion. Fixed-income trading posted $1.13 billion in revenue, below the $1.32 billion forecasts. Investment banking posted $1.47 billion in revenue, inching out analysts’ expectations of $1.40 billion.

Net interest income for the quarter declined to $1 billion. Morgan Stanley cautioned that it could be negatively impacted if the Federal Reserve announces a rate cut. However, rate cuts, according to the bank, may improve revenue from trading operations if volatility increases as anticipated.

The CEO James Gorman said net interest income “is important to us, but not as important as it is to some of the other banks. It’s clearly a headwind, but it’s not like we don’t have some other things going on under the hood here.”

The company stated that its board authorized a $6 billion share repurchase program, which is scheduled to begin in the third quarter of 2019 through the end of Q2, 2020. Notably, Morgan Stanley has announced a quarterly dividend of $0.35 per share, up from $0.30 per share, payable on August 15, 2019.

In a research note to clients, Devin Ryan, an analyst at JMP Securities said: “We view Morgan Stanley’s 2Q19 results as solid against a choppy operating backdrop, but also generally straightforward without any big surprise. We believe the market’s bigger focus today will be on management’s outlook commentary heading into the second half of 2019.”

The second-quarter beat and impressive performance of all three business divisions are expected to keep the stock bullish in the short-term.

Technically, the stock is range-bound between 41 and 51. Following the announcement of second-quarter earnings, the stock successfully tested its support level. The stock is also trading above its 50-day moving average. Furthermore, the MACD indicator has a positive reading. As a result, we can expect the stock to move up in the short-term.

ms - technical analysis - 19th July 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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