Morgan Stanley Rides on IB Wave, Surpasses Q3 Earnings Estimates

Morgan Stanley’s MS third-quarter 2024 earnings of $1.88 per share handily outpaced the Zacks Consensus Estimate of $1.57. The bottom line also compared favorably with $1.38 in the prior-year quarter.

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Shares of MS jumped almost 3.5% in the pre-market trading on bumper deal-making activities, which majorly supported its quarterly performance.

Behind Morgan Stanley’s Headline Numbers

Like Wall Street peers, Morgan Stanley’s investment banking (IB) business performance was solid. Advisory fees surged 22% year over year. Further, underwriting fees witnessed solid momentum in the quarter. Specifically, equity underwriting income jumped 53% and fixed income underwriting income increased 120%. So, total IB fees (in the Institutional Securities division) grew 56% to $1.46 billion. We had projected it to be $1.48 billion.

The company also posted a solid trading performance. Equity trading revenues increased 21% year over year to $3.04 billion and fixed-income trading income was up 3% to $2 billion. Our projections for equity and fixed-income trading revenues were $2.81 billion and $1.98 billion, respectively.

Further, wealth management business performance was solid. Lower provisions were another tailwind for Morgan Stanley.

The company’s net interest income (NII) witnessed decent growth despite higher interest expenses. An increase in total non-interest expenses was a headwind.

Net income applicable to common shareholders was $3.03 billion, up 34% from the year-ago quarter. Our estimate for the metric was $2.53 billion.

Morgan Stanley’s Revenues Jump, Expenses Rise

Quarterly net revenues were $15.38 billion, up 16% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $14.27 billion.

NII was $2.2 billion, up 11%. We had projected NII of $1.97 billion.

Total non-interest revenues of $13.19 billion jumped 17%. Our estimate for the metric was $12.28 billion.

Total non-interest expenses were $11.08 billion, up 11%. Our estimate for the metric was $10.66 billion.

Provision for credit losses was $79 million, down 41% from the prior-year quarter. We had projected the metric to be $24.9 million.

Quarterly MS’ Segment Performance

Institutional Securities: Pre-tax income was $1.91 billion, jumping 59% from the prior-year quarter. Our estimate for the same was $1.87 billion.

Net revenues were $6.82 billion, up 20% year over year. The upside resulted from increased advisory fees, underwriting income and trading revenues. We had projected revenues of $6.51 billion.

Wealth Management: Pre-tax income totaled $2.06 billion, up 21% year over year. Our estimate for the metric was $1.55 billion.

Net revenues were $7.27 billion, up 14%, driven by higher asset management revenues and transactional revenues. We had projected revenues of $6.57 billion.

Total client assets were $5.97 trillion as of Sept. 30, 2024, up 25% year over year. We had projected the metric to be $5.48 trillion.

Investment Management: Pre-tax income was $260 million, growing 8% from the year-ago quarter. Our estimate for the same was $153.2 million.

Net revenues were $1.46 billion, up 9%. The improvement was attributable to a rise in asset management and related fees, and performance-based income and other revenues. We had projected revenues of $1.31 billion.

As of Sept. 30, 2024, total assets under management or supervision were $1.6 trillion, up 15% year over year. Our estimate for the metric was $1.4 trillion.

Morgan Stanley’s Capital Position Solid

As of Sept. 30, 2024, the book value per share was $58.25, up from $55.08 in the corresponding period of 2023. The tangible book value per share was $43.76, up from $40.53 as of Sept. 30, 2023.

Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 16.9% compared with 18.2% in the year-ago quarter. The common equity Tier 1 capital ratio was 14.9%, down from 16.1% a year ago.

Update on Morgan Stanley’s Share Repurchases

In the reported quarter, Morgan Stanley repurchased 8 million shares for $750 million.

Our Viewpoint on MS

Elevated expenses due to investments in franchises will likely continue to hurt Morgan Stanley’s profits. The challenging operating backdrop makes us apprehensive. Yet, the company’s increased focus on the wealth management business will likely keep aiding revenues. Further, a solid performance of the IB business will act as a tailwind.
 

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.

Performance of Morgan Stanley’s Peers

Goldman Sachs’ GS third-quarter 2024 adjusted earnings per share of $8.40 surpassed the Zacks Consensus Estimate of $6.85. This compares favorably with $5.47 in the year-ago quarter.

Goldman’s results benefited from a strong performance in its IB business and a solid Asset & Wealth Management division. A decline in expenses was another positive. However, a rise in provisions and a weak capital position remain concerns.

High interest rates and solid IB business performance drove JPMorgan’s JPM third-quarter 2024 earnings to $4.37 per share. The bottom line handily surpassed the Zacks Consensus Estimate of $4.02.

Robust capital markets performance and a rise in NII majorly supported JPM’s quarterly performance. On the other hand, higher non-interest expenses and provisions and subdued mortgage banking performance were the headwinds.

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