Jul 18 (Portal) – Morgan Stanley’s profit beat estimates as growth in its wealth management business offset lower trading revenue in the second quarter and executives expressed optimism about the economic environment.
Morgan Stanley (MS.N) shares rose more than 6% as it weathered a 14% drop in earnings. Excluding one-time items, Morgan Stanley earned $1.24 per share on sales of $13.46 billion, comfortably beating estimates of $1.15 per share on sales of $13.08 billion , according to data from Refinitiv IBES.
“We ended the quarter in better shape and tone overall,” said CEO James Gorman, after the period began with uncertainty surrounding the banking crisis, geopolitical tensions and US interest rate developments. “While we may not be quite at the end of the hike, I think we’re getting very close,” he told analysts on a conference call.
The wealth management unit’s net income rose 16% in the quarter to a record $6.7 billion, and it added nearly $90 billion in new assets.
These results helped offset the decline in trading revenue as volatility fell. Fixed income earnings fell 31% while equities fell 14%. Morgan Stanley’s profits were also hurt by $300 million in severance costs after the bank laid off thousands of employees this year.
Investment banking revenue was flat at $1.16 billion. “Results appear to be much better than feared in a challenging environment,” UBS analyst Brennan Hawken wrote in a note.
INVESTMENT BANKING
While more muted markets weighed on trading, stabilizing market conditions have yet to boost activity in capital markets, CFO Sharon Yeshaya said in a phone interview.
Still, “we expect investment banking to lead the recovery in the next quarter,” she said in an interview with Portal. Mergers and acquisitions are picking up in some industries, such as finance and energy, and the bank’s backlog is growing, she later told analysts on a conference call. Investment banking revenues were flat compared to the prior year.
Morgan Stanley stock responded well to the improved outlook for the remainder of the year, said James Shanahan, an analyst at Edward Jones.
SUCCESSION
Gorman announced in May that he would be stepping down within a year. Morgan Stanley’s board of directors will focus on selecting Gorman’s successor at its summer and fall meetings, a person familiar with the situation told Portal last month.
The top three candidates include Ted Pick, the company’s co-president, who oversees investment banking and trading, and co-president Andy Saperstein, who oversees wealth management.
Although business unit results varied, Gorman emphasized that their performance was not the only factor in selecting the CEO.
Investment management revenue, led by third CEO nominee Dan Simkowitz, fell 2%.
Reporting by Tatiana Bautzer in New York and Mehnaz Yasmin and Niket Nishant in Bengaluru; Edited by Lananh Nguyen, Arun Koyyur, Louise Heavens and Nick Zieminski
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