Morgan Stanley’s shares (NYSE: MS) declined by 4.41% yesterday to close at $42.53, after the bank posted disappointing fourth-quarter results that ended a series of 12-quarter earnings beats, placing it on the path for the largest single-day post-earnings decline since the global financial crisis. The worst fall the stock had seen on the day earnings were reported on April 22nd, 2009, when it lost 9% after posting disappointing first-quarter results. In the past year, the stock price has seen an erosion of 24%.
Major business divisions fail to perform well
Seesawing markets took a toll on Morgan Stanley’s fourth-quarter revenue and profit. The bank missed both top and bottom-line expectations of analysts. The New York-based bank reported 4Q18 revenues of $8.548 billion, down 10% from $9.50 billion in the similar period last year. Zack analysts had expected the financial institution to post revenues of $9.44 billion.
For the quarter ended December 31st, 2018, Morgan Stanley posted earnings of $1.361 billion or $0.80 per share, compared with $473 million or $0.26 per share in the prior-year period. Income tax provision fell sharply to $300 million, from $1.81 billion last year. This enabled the bank to post a 207% y-o-y increase in the 4Q18 earnings per share. Still, it was below analysts’ Consensus estimate of $0.89 per share.
Segment-wise, the bank’s institutional securities business, which consists of trading and advisory divisions, recorded $3.84 billion in revenue, almost $500 million below the $4.33 billion estimates. In particular, fixed-income trading revenue plunged 30% to $564 million, while equity trading revenue remained almost flat at $1.9 billion. Investment banking revenue declined 4% y-o-y to $1.488 billion.
The bank’s wealth management division reported revenues of $4.14 billion, down 6% from the year-ago period. Economists had anticipated revenues of $4.45 billion estimate.
The y-o-y growth of 7% in the investment management division, the smallest division of the bank, surpassed analysts’ estimates by generating $684 million in revenue, versus an estimate of $656.7 million.
As of December 31st, 2018, Morgan Stanley’s Common Equity Tier 1 and Tier 1 capital ratios were approximately 16.8% and 19.1%, respectively. The company’s Board has approved a quarterly dividend of $0.30 per share, payable on February 15th, 2019.
Commenting on the results, James Gorman, Chairman and CEO, said “In 2018 we achieved record revenues and earnings, and growth across each of our business segments, despite a challenging fourth quarter. We delivered higher annual returns, producing an ROE of 11.8% and ROTCE of 13.5%, as we continued to invest in our businesses. While the global environment remains uncertain, our franchise is strong and we are well-positioned to pursue growth opportunities and serve our clients.”
The earnings miss is expected to keep the stock weak in the days to come.
The historical price chart indicates that the stock has broken below its 50-day moving average. Furthermore, the Chaikin money flow indicator is in the negative region. As a result, a further downtrend in the stock price can be anticipated.
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