The US investment banking firms have so far defied the Wall Street expectations for weak third-quarter performance.
Specifically, Morgan Stanley (NYSE: MS), on Thursday, reported its best Q3 results in the past decade, led by a robust bond trading revenue that more than offset a decline in wealth management revenues. Furthermore, the smallest of the “Big Six” banks reported earnings and revenues that surpassed analysts’ expectations. Following the impressive results, the stock closed at $43.44 up to $0.65 or 1.52% from the prior close.
The New York-based bank reported third-quarter revenues of $10.03 billion, up 2% from $9.87 billion last year. Analysts anticipated Morgan Stanley to post revenues of $9.60 billion for the quarter.
For the third quarter, the financial institution posted earnings of $2.06 billion, or $1.27 per share, compared with $2.019 billion, or $1.17 per share in the comparable quarter last year. Analysts surveyed by Thomson Reuters anticipated the company to post earnings of $1.11 per share for Q3 2019.
The bank’s CEO James Gorman highlighted the effectiveness of the business model while commenting on the results: “We delivered strong quarterly earnings despite the typical summer slowdown and volatile markets. …. Our consistent performance shows the stability of our business model. We remain committed to controlling our expenses and are well-positioned to pursue our growth initiatives.”
Segment-wise,
- Institutional Securities – reported net revenues of $5.0 billion, up from $4.9 billion last year. Specifically, investment banking revenues rose 5% y-o-y to $1.535 billion. Sales and trading revenues were $3.455 billion, an increase of 10% on a y-o-y basis. Under the Sales and trading division, equity sales and trading revenues slightly declined to $1.991 billion, from $2.019 billion. Analysts anticipated trading revenues of $2.10 billion for the quarter. Fixed income revenues surged 21% y-o-y to $1.430 billion and surpassed the Wall Street estimate of $1.11 billion.
- Wealth Management – posted $4.358 billion, compared with $4.399 billion in the prior-year period. Analysts surveyed by FactSet anticipated revenues of $4.39 billion. Asset management revenues increased to $2.639 billion, from $2.573 billion.
- Investment Management – reported net revenues of $764 million, an increase from $653 million in the year-ago period.
Chief Executive Officer James Gorman has guided the bank to move away from trading and advisory business with stress on wealth management. However, the bank still has a huge chunk of Wall Street operations.
Technically, the stock has closed above its 50-day moving average. The stock has proven support and resistance at 40 and 50, respectively. Additionally, the Chaikin money flow indicator is in the positive region. Therefore, we anticipate the stock to rally in the days to come.
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