Morgan Stanley (NYSE: MS), similar to other central banks in the US, has reported better-than-anticipated fiscal 2021 first-quarter earnings and revenue against the backdrop of robust performance of the trading and investment banking division.
Despite the impressive quarterly results, the stock of Morgan Stanley ended Friday’s trading session at $78.59, down $2.23 or 2.76% from the previous close.
The reason is that investors were surprised by the $911 million loss linked to the collapse of hedge fund Archegos Capital Management.
The New York-based company reported first-quarter revenues of $15.719 billion, up 61% from $9.779 billion in a similar quarter last year.
Analysts surveyed by Refinitiv had anticipated the company to report revenues of $14.10 billion for the reported period.
Strong trading and banking operations enabled the company to post upbeat revenue. The upsurge in SPAC formation (Special Purpose Acquisition Company) has paved the way for windfall gains for equity division. Trading desks also gained from robust activity across stock and fixed income markets.
For the quarter ended March 31, 2021, Morgan Stanley posted a net income of $3.982 billion, or $2.19 per share, compared with $1.590 billion, or $1.01 a share, in the quarter ended March 30 2020.
Excluding integration-related expenses, the company recorded Q1, 2021 adjusted earnings of $2.22 per share, compared with $1.01 per share in Q1, 2020. Analysts polled by Refinitiv had anticipated the company to report earnings of $1.70 per share for the quarter.
The company revealed that the quarterly results include a loss of $644 million linked to a credit provided to a prime brokerage customer and another $267 million loss from trading related to the same client.
The market was quick to understand that the losses were related to Archegos Capital Management.
Commenting on the results, James Gorman, Chairman, and CEO stated, “The Firm delivered record results. The integrated Investment Bank continues to thrive. […] The Firm is very well positioned for growth in the years ahead.”
Segment-wise (non-interest revenues),
- Institutional securities revenues increased6% y-o-y to $8.577 billion. Investment banking revenues surged 128% to $2.61 billion, surpassing analysts’ estimates of $2.10 billion.
- Underinvestment banking revenues, equity underwriting revenues posted a new historical high of $1.502 billion. This compares with a mere $336 million in equity underwriting revenues in the year-ago period.
- Aided by robust credit trading, fixed income trading desks recorded revenues of $2.966 billion, compared with $2.062 billion last year. Similarly, equity trading posted revenues of $2.875 billion, exceeding estimates by about $170 million.
- Wealth management revenues were $5.959 billion, up 46.9% from last year, matching forecasts of Wall Street analysts.
- Investment management revenues rose by 89.9% y-o-y $1.314 billion.
Morgan Stanley recorded a benefit of $93 million in the first quarter of 2021 due to the release of reserves set aside for loan losses. The company had set aside $388 million as a provision for credit losses in 1Q 2020.
The bank ended the first quarter with a standard equity tier 1 ratio of 16.8%. The company also repurchased shares worth $2.10 billion during the reported period.
The company’s CEO James Gorman revealed $20 billion worth of acquisition deals in 2020, representing the best year for acquisition since the 2008-09 financial crisis. The bank acquired E-Trade for $13 billion and Eaton Vance for $7 billion. During the first quarter, the firm completed the acquisition of Eaton Vance.
Despite the loss related to Archegos Capital Management, the quarterly earnings beat is expected to turn the stock slightly bullish in the days ahead.
The historical price chart indicates that the stock continues to trade above its 50-day moving average. Additionally, the stochastics indicator is rising. Therefore, we are anticipating the stock to rally in the days ahead.
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.
