Morgan Stanley shares jump after earnings, revenue easily beat the Street

Key Points
  • Morgan Stanley reported second quarter earnings well above expectations.
  • The bank's trading revenues weren't hit as hard as other major banks.
Morgan Stanley tops Street, manages fixed income beat

Morgan Stanley reported second quarter earnings Wednesday that soundly topped expectations, helped by an increase in stock trading revenues and profits from its wealth management business.

Earnings per share: 87 cents vs. 76 cents expected by a Thomson Reuters consensus estimate.

Revenue: $9.50 billion vs. the $9.09 billion estimate.

The shares traded about 3 percent higher Wednesday morning.

Morgan Stanley shares 2-day performance

Source: FactSet

Morgan Stanley's markets revenue held up better than other big banks that reported this quarter.

Equity sales and trading net revenues increased by $100 million to $2.2 billion, little changed from a year ago but up 7 percent from the first quarter, "reflecting strong contributions across products and regions," Morgan Stanely said in a statement.

Overall sales and trading revenue decreased by $100 million, or 2 percent, from a year ago, to $3.2 billion. Bond trading revenue fell $100 million, or 4 percent, to $1.2 billion in the second quarter, "driven by lower volatility and sporadic activity during the quarter," the release said. Fixed income trading revenue was $1.7 billion in the first quarter.

The second quarter marked the second in a row for which Morgan Stanley's fixed income trading revenue topped that of Goldman Sachs.

On Tuesday, Goldman reported fixed income, currency and commodities trading net revenue dropped 40 percent from the second quarter of 2016 to $1.16 billion, down from $1.69 billion the prior quarter.

JPMorgan Chase also said overall trading revenue fell 14 percent and fixed income trading revenue declined 19 percent. Bank of America said fixed income trading sales fell 14 percent. Citi said its second-quarter revenue from fixed income trading fell 6 percent.

"Our second quarter results demonstrated the resilience of our franchise in a subdued trading environment," Morgan Stanely Chairman and CEO James P. Gorman said in the statement. "Our wealth management business produced a 25% margin and our strong investment banking results attest to the diversity of our global business."

Wealth management net revenues for the quarter rose 9 percent to a record $4.2 billion and the pretax margin was 25 percent. Client assets rose 10 percent to $2.2 trillion.

Net interest income in wealth management rose 22 percent from the year-ago quarter to $1.01 billion.

Morgan Stanley also reported 9.1 percent return on equity, a key measure of profitability.

Investment banking revenues leaped 25 percent to $1.53 billion, helped by gains in stock and bond underwriting revenues.

Total non-interest expenses did rise 7 percent to $6.86 billion, more than the $6.75 billion FactSet estimate.

In the second quarter of 2016, Morgan Stanley reported earnings per share of 75 cents on revenue of $8.9 billion.

The Federal Reserve in late June did not object to Morgan Stanley's capital return plan, along with 33 other major banks. Only Capital One received conditional approval on their "stress tests."

Morgan Stanley said it plans to declare a 25 cent quarterly dividend in the third quarter, an increase of 5 cents. The bank also said it will increase share repurchases from $3.5 billion to up to $5 billion of outstanding common stock for the four quarters, also beginning in the third quarter.

With Wednesday morning's gains, shares of Morgan Stanley are up about 10 percent for the year.