A slowdown in trading and deal making weighed on
Morgan Stanley’s
second-quarter earnings, but the investment bank still topped expectations.
Tuesday’s beat was enough to push Morgan Stanley (ticker: MS) stock up 6.5%, putting it on path for its highest percentage-point gain since Nov. 9, 2020.
Even though earnings beat forecasts, profit at Morgan Stanley slid 12% year over year to $2.2 billion, or $1.24 a share, on $13.5 billion in revenue. Analysts surveyed by FactSet projected earnings of $1.20 a share on $13 billion in revenue.
“The firm delivered solid results in a challenging market environment. The quarter started with macroeconomic uncertainties and subdued client activity, but ended with a more constructive tone,” Chief Executive James Gorman said Tuesday.
Despite the challenging forecast, Morgan Stanley has fared reasonably well this year. Shares have risen a modest 2%, lagging behind the 18% jump in the
S&P 500,
but there are other reasons for investors to get excited about Morgan Stanley’s stock. After passing the Federal Reserve’s annual stress test last month, the bank lifted its quarterly dividend by 9.7% to 85 cents a share. It also said it was reauthorizing its $20 billion share repurchase plan.
Wall Street knows not to expect much from Morgan Stanley’s investment banking division. Deal activity has slumped across the industry because of financing costs pushed higher by rising interest rates and a regulatory environment under President Joe Biden that is more hostile to mergers.
Advisory revenue fell 24% to $455 million, reflecting fewer completed deals. That was offset by increases in equity and fixed-income underwriting. Equity trading revenue was down by 14%, while fixed income trading revenue fell 31%.
The slowdown in deal making also weighed on the results of
JPMorgan Chase
(JPM) and
Citigroup
(C), which posted their second-quarter results on Friday.
But weakness in investment banking was more than offset by strength in Morgan Stanley’s more durable asset and wealth management businesses. Wealth management posted record net revenue, climbing to $6.7 billion from $5.7 billion in the year-ago quarter.
Outside of earnings, Wall Street will be looking for signs of succession planning. In May, Gorman announced his intention to step down within the next year. There are three internal candidates to succeed Gorman, who said he intends to stay on as executive chairman after relinquishing the CEO role.
Bank of America
(BAC) also posted results Tuesday.
Goldman Sachs
(GS) will report on Wednesday.
Write to Carleton English at [email protected]
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