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Morgan Stanley (MS) Q2 Earnings Miss, Revenues & Costs Decline
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Morgan Stanley’s (MS - Free Report) second-quarter 2022 adjusted earnings of $1.44 per share lagged the Zacks Consensus Estimate of $1.55. The bottom line reflects a decline of 24% from the year-ago quarter.
The performance of the investment banking (“IB”) business was not good. Equity underwriting fees decreased 86% from the prior-year quarter and fixed-income underwriting declined 49%. Advisory fees were down 10% year over year. Therefore, IB fees declined 55%.
While an increase in net interest income, driven by a rise in total loan balance (up 18%) and higher interest rates, supported the top line to some extent, a decline in non-interest revenues acted as a headwind.
Nevertheless, as expected, Morgan Stanley’s trading business performed well. While fixed-income trading revenues increased 49% year over year, equity trading income rose 5%.
Operating expenses declined year over year, which was a positive.
Including integration-related expenses for the E*Trade Financial (closed October 2020) and Eaton Vance (closed March 2021) deals, net income applicable to common shareholders was $2.4 billion, down 30% from the year-ago quarter.
Revenues & Expenses Decline
Net revenues were $13.1 billion, down 11% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $13.3 billion.
Net interest income was $2.3 billion, up 22% from the year-ago quarter. The upside was largely driven by a 63% rise in interest income.
Total non-interest revenues of $10.9 billion decreased 16% year over year.
Total non-interest expenses were $9.7 billion, down 4% year over year.
Provision for credit losses was $101 million, up 38% from the prior-year quarter.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income was $1.6 billion, down 38% from the prior-year quarter. Net revenues were $6.1 billion, down 14%. The downside was due to a fall in investment banking revenues, partly offset by higher equity and fixed-income trading revenues.
Wealth Management: The segment includes the results of E*Trade Financial. Pre-tax income totaled $1.5 billion, down 7% year over year. Net revenues were $5.7 billion, decreasing 6% from the prior-year quarter due to lower transactional and other revenues.
Total client assets were $4.2 trillion as of Jun 30, 2022, down 7% year over year.
Investment Management: The segment includes the results of Eaton Vance. Pre-tax income was $249 million, falling 42% from the year-ago quarter. Net revenues were $1.4 billion, down 17%. The fall was due to a decline in asset management and related fees, as well as performance-based and other income.
As of Jun 30, 2022, total assets under management or supervision were $1.4 trillion, down 11% from Jun 30, 2021.
Strong Capital Position
As of Jun 30, 2022, book value per share was $54.46, up from $54.04 in the corresponding period of 2021. Tangible book value per share was $40.07, down from $40.12 as of Jun 30, 2021.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.1% compared with 19.5% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.4%, down from 17.7%.
Capital Deployment Update
In the reported quarter, Morgan Stanley repurchased shares worth $2.7 billion.
Our Take
Elevated expenses due to investments in franchise will likely continue to hurt Morgan Stanley’s profits to some extent in the near term. Uncertainty about the performance of the capital markets makes us apprehensive.
Hancock Whitney Corporation (HWC - Free Report) is scheduled to release second-quarter 2022 results on Jul 19.
Over the past 30 days, the Zacks Consensus Estimate for HWC’s quarterly earnings has moved 5% lower to $1.34. The estimate indicates a 2.2% decline from the prior-year quarter.
Associated Banc-Corp (ASB - Free Report) is scheduled to release second-quarter 2022 numbers on Jul 21.
Over the past 30 days, the Zacks Consensus Estimate for Associated Banc-Corp’s quarterly earnings has been unchanged at 44 cents. The estimate figure implies a 21.4% decrease from the prior-year quarter’s reported number.
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Morgan Stanley (MS) Q2 Earnings Miss, Revenues & Costs Decline
Morgan Stanley’s (MS - Free Report) second-quarter 2022 adjusted earnings of $1.44 per share lagged the Zacks Consensus Estimate of $1.55. The bottom line reflects a decline of 24% from the year-ago quarter.
The performance of the investment banking (“IB”) business was not good. Equity underwriting fees decreased 86% from the prior-year quarter and fixed-income underwriting declined 49%. Advisory fees were down 10% year over year. Therefore, IB fees declined 55%.
While an increase in net interest income, driven by a rise in total loan balance (up 18%) and higher interest rates, supported the top line to some extent, a decline in non-interest revenues acted as a headwind.
Nevertheless, as expected, Morgan Stanley’s trading business performed well. While fixed-income trading revenues increased 49% year over year, equity trading income rose 5%.
Operating expenses declined year over year, which was a positive.
Including integration-related expenses for the E*Trade Financial (closed October 2020) and Eaton Vance (closed March 2021) deals, net income applicable to common shareholders was $2.4 billion, down 30% from the year-ago quarter.
Revenues & Expenses Decline
Net revenues were $13.1 billion, down 11% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $13.3 billion.
Net interest income was $2.3 billion, up 22% from the year-ago quarter. The upside was largely driven by a 63% rise in interest income.
Total non-interest revenues of $10.9 billion decreased 16% year over year.
Total non-interest expenses were $9.7 billion, down 4% year over year.
Provision for credit losses was $101 million, up 38% from the prior-year quarter.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income was $1.6 billion, down 38% from the prior-year quarter. Net revenues were $6.1 billion, down 14%. The downside was due to a fall in investment banking revenues, partly offset by higher equity and fixed-income trading revenues.
Wealth Management: The segment includes the results of E*Trade Financial. Pre-tax income totaled $1.5 billion, down 7% year over year. Net revenues were $5.7 billion, decreasing 6% from the prior-year quarter due to lower transactional and other revenues.
Total client assets were $4.2 trillion as of Jun 30, 2022, down 7% year over year.
Investment Management: The segment includes the results of Eaton Vance. Pre-tax income was $249 million, falling 42% from the year-ago quarter. Net revenues were $1.4 billion, down 17%. The fall was due to a decline in asset management and related fees, as well as performance-based and other income.
As of Jun 30, 2022, total assets under management or supervision were $1.4 trillion, down 11% from Jun 30, 2021.
Strong Capital Position
As of Jun 30, 2022, book value per share was $54.46, up from $54.04 in the corresponding period of 2021. Tangible book value per share was $40.07, down from $40.12 as of Jun 30, 2021.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.1% compared with 19.5% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.4%, down from 17.7%.
Capital Deployment Update
In the reported quarter, Morgan Stanley repurchased shares worth $2.7 billion.
Our Take
Elevated expenses due to investments in franchise will likely continue to hurt Morgan Stanley’s profits to some extent in the near term. Uncertainty about the performance of the capital markets makes us apprehensive.
Morgan Stanley Price, Consensus and EPS Surprise
Morgan Stanley price-consensus-eps-surprise-chart | Morgan Stanley Quote
Currently, Morgan Stanley carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Banks
Hancock Whitney Corporation (HWC - Free Report) is scheduled to release second-quarter 2022 results on Jul 19.
Over the past 30 days, the Zacks Consensus Estimate for HWC’s quarterly earnings has moved 5% lower to $1.34. The estimate indicates a 2.2% decline from the prior-year quarter.
Associated Banc-Corp (ASB - Free Report) is scheduled to release second-quarter 2022 numbers on Jul 21.
Over the past 30 days, the Zacks Consensus Estimate for Associated Banc-Corp’s quarterly earnings has been unchanged at 44 cents. The estimate figure implies a 21.4% decrease from the prior-year quarter’s reported number.