Morgan Stanley adds 5%, posts best day since Trump's election after earnings top Street forecasts

Key Points
  • Investment banking generated $1.5 billion in revenue; that puts investment banking revenue up more than 15 percent year over year.
  • Net income applicable to shareholders for the bank came in at $2.02 billion, or $1.17 per diluted share, up 20 percent from a year ago.
  • "In the first half of the year, we produced strong results across the franchise," CEO James Gorman says.
James Gorman, chief executive of Morgan Stanley.
Qilai Shen | Bloomberg | Getty Images

Morgan Stanley shares posted their best day in nearly two years after the company topped analysts expectations as strong investment banking results pushed revenue up 15 percent over last year.

Bond and equity trading revenue also exceeded expectations despite a late-summer lull. Earnings per share of $1.17 beat the $1.01 forecast by analysts polled by Refinitiv. Net income applicable to shareholders came in at $2.02 billion, up 20 percent from a year ago. The bank reported profit of $2.11 billion on $9.87 billion in revenue.

The stock closed up 5.68 percent Tuesday, its best session since Nov. 9, 2016, the day following President Donald Trump's election.

Investment banking, which includes deal advisory and stock and bond issuance, generated $1.5 billion in revenue compared with the $1.3 billion estimate. That puts investment banking revenue up more than 15 percent from last year. The bank said the improved results were thanks to higher IPO revenues and convertible offerings as well as better loan and bond fees.

In the bank's equities division, the biggest on Wall Street, the company delivered $2 billion in revenue on "solid" performance across all products, especially financing, up 5 percent since September 2017. Its bond trading department produced revenue of $1.2 billion, unchanged year over year, on higher results in foreign exchange and commodities. The results were above estimates of $1.98 billion and $1.15 billion, respectively.

"In the first half of the year, we produced strong results across the franchise," CEO James Gorman said in the earnings press release. "Despite the seasonal summer slowdown in the third quarter, we reported solid revenue and earnings growth demonstrating the stability of the franchise."

Revenue in wealth management met the Street's expectations. The division produced $4.4 billion in revenue, up 4.7 percent since the third quarter of 2017, as the company said transactional revenue declined by 5.5 percent thanks to lower fixed-income results. Investment management, the smallest of the company's three main divisions, generated $653 million in revenue, below the $654 million estimate.

Shares of Morgan Stanley are down more than 13 percent in 2018.

Gorman has broadened Morgan Stanley's wealth management division, a more reliable source of revenue than the traditionally volatile trading operations. The CEO has also revamped the bank's fixed-income business, a strategic bet that helped the company eclipse rival Goldman Sachs in market capitalization earlier this year.

Also Tuesday, Goldman beat analysts' expectations for third-quarter profit and revenue on strength in all of its major businesses apart from trading.

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