Morgan Stanley's (MS) Q3 Earnings Beat Estimates, IB Subdued
Morgan Stanley’s MS third-quarter 2023 earnings of $1.38 per share handily surpassed the Zacks Consensus Estimate of $1.27. However, the bottom line reflects a decline of 6% from the year-ago quarter.
Shares of Morgan Stanley slipped almost 3% in pre-market trading as global deal-making slump continued to have an adverse impact on its earnings.
Bucking the industry-wide trend, Morgan Stanley posted decent trading performance during the quarter. Fixed-income trading revenues decreased 11%, while equity trading income was up 2% year over year.
Moreover, as expected, the performance of the investment banking (“IB”) business was not very impressive. While equity underwriting fees increased 9%, fixed income underwriting income was down 31% and advisory fees tanked 35%. Therefore, total IB fees (in the Institutional Securities division) decreased 27% from the prior-year quarter.
Also, despite a significant increase in interest income (driven by higher rates), the company’s net interest income (NII) declined on substantially higher interest expenses.
Higher expenses and provisions were the other headwinds in the quarter.
Net income applicable to common shareholders was $2.26 billion, down 9% from the year-ago quarter. Our estimate for the metric was $2.1 billion.
Revenues Improve, Expenses Rise
Net revenues were $13.27 billion, up 2% from the prior-year quarter. The top line also beat the Zacks Consensus Estimate of $13.08 billion.
NII was $1.98 billion, down 21% year over year. We had projected NII of $1.94 billion for the third quarter.
Total non-interest revenues of $11.3 billion increased 8%. Our estimate for the metric was $11.12 billion.
Total non-interest expenses were $10 billion, up 5%. Our estimate for expenses was $9.94 billion.
Provision for credit losses was $134 million in the third quarter, up significantly from $35 million in the prior-year quarter. Our estimate for the metric was $90.1 million.
Quarterly Segment Performance
Institutional Securities: Pre-tax income was $1.2 million, down 26% from the prior-year quarter. Our estimate for the same was $981.2 million.
Net revenues were $5.67 billion, down 3%. The downside resulted from a fall in advisory revenues, fixed-income underwriting and fixed-income trading revenues. We had projected total revenues to be $5.33 billion.
Wealth Management: Pre-tax income totaled $1.71 billion, up 4% year over year. Our estimate for the same was $1.90 billion.
Net revenues were $6.4 billion, up 5%, driven by higher asset management revenues and transactional revenues. We had projected total revenues of $6.59 billion.
Total client assets were $4.79 trillion as of Sep 30, 2023, up 16% year over year. We had projected the metric to be $4.84 trillion.
Investment Management: Pre-tax income was $241 million, jumping substantially from $116 million in the year-ago quarter. Our estimate for the same was $152.6 million.
Net revenues were $1.34 billion, up 14%. The improvement was attributable to a rise in asset management and related fees, and performance-based income and other income. We had projected total revenues of $1.27 billion.
As of Sep 30, 2023, total assets under management or supervision were $1.39 trillion, up 9% from Sep 30, 2022. Our estimate for the metric was $1.42 trillion.
Capital Position Improves
As of Sep 30, 2023, the book value per share was $55.08, up from $54.46 in the corresponding period of 2022. The tangible book value per share was $40.53, up from $39.93 as of Sep 30, 2022.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 18.1% compared with 17.1% in the year-ago quarter. Common equity Tier 1 capital ratio was 16.1%, up from 15.2% a year ago.
Share Repurchase Update
In the reported quarter, Morgan Stanley repurchased 17 million shares for $1.5 billion.
Our View
Elevated expenses due to investments in franchises will likely continue to hurt Morgan Stanley’s profits. Uncertainty about the performance of the capital markets makes us apprehensive. Yet, the company’s increased focus on wealth management business will likely keep aiding revenues. Also, higher interest rates are expected to boost net interest income growth.
Morgan Stanley Price, Consensus and EPS Surprise
Morgan Stanley price-consensus-eps-surprise-chart | Morgan Stanley Quote
Currently, Morgan Stanley carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance & Earnings Date of Other Investment Banks
The Goldman Sachs Group, Inc.’s GS third-quarter 2023 earnings per share of $5.47 surpassed the Zacks Consensus Estimate of $5.32. Also, the bottom line fell 34% from the year-earlier quarter.
Goldman’s results have been supported by strong Fixed Income, Currency and Commodities Client Execution (FICC) financing revenues, as well as strength in the consumer banking business.
Evercore Inc. EVR is slated to announce third-quarter 2023 numbers on Oct 25.
Over the past 30 days, the Zacks Consensus Estimate for EVR’s quarterly earnings has remained unchanged at $1.31, implying a 40.5% decrease from the prior-year reported number.
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