Ticker Symbol: MS
Morgan Stanley reported second-quarter earnings today that missed average analyst estimates in most categories. The large investment bank has faced challenges due to a global capital market slump that has impacted deal-making, sales and trading, and asset management. The company also booked a $200 million fine due to the unapproved use of personal devices and the bank’s record-keeping requirements, which negatively impacted results. Shares were down 3% in the morning trading session.
The company reported net revenue of $13.1 billion compared to Wall Street’s expectations of $13.3 billion. Divisionally, wealth management delivered revenue of $5.74 billion compared to the average estimate of $5.82 billion. Investment banking posted revenue of $1.07 billion, down 55% year over year, against analysts’ expectations of $1.12 billion. Trading revenue was the one bright spot for the bank, with revenue of $5.46 billion beating the $5.05 billion estimate and jumping by 21% year over year.
Deal-making at the bank’s advisory investment banking division was the weakest, relative to fiscal 2021. Merger and acquisition transactions, which represent the bulk of the revenue source for the division, have essentially frozen with the malaise in economic conditions and high inflation. Companies are less willing to use their balance sheets to make deals and are instead largely in cash preservation mode. The advisory top-line declined almost 10% to $598 million during the quarter.
Wealth management, which has quickly become one of the most profitable segments at the bank, disappointed, with revenue down 5.9% from the year-ago period. Net new assets fell by 26% to $52.9 billion. Total assets under management increased by 2% reflecting higher asset levels driven by continued positive fee-based flows and were somewhat counteracted by lower market levels compared to 2021.
Equity sales and trading revenue were $2.96 billion for the quarter, up 4.7% year over year and higher than the estimated $2.94 billion. Fixed income, commodities, and currencies revenue also beat estimates, coming in at $2.5 billion against the $2.15 billion expected. Underwriting revenues missed for both equities and fixed income, coming in at $148 million and $326 million, respectively.
Looking ahead, Chief Executive Officer James Gorman said that higher interest rates should be a boost to the bank in the second half of the year as net interest income increases in the wealth management division. The company also expects a better deal-making environment once volatility settles down in the fourth quarter. Management also highlighted that expenditures, especially non-compensation expenses, are going to be a key area of focus in the near term.
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