Finance

Morgan Stanley shares rise after fourth-quarter profit tops estimates

Key Points
  • Here are the numbers: Earnings of $2.01 a share vs. estimate $1.91 a share, according to Refinitiv.
  • Revenue: $14.52 billion vs. estimate $14.6 billion

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Morgan Stanley reports Q4 earnings, profits beat Wall Street's estimates
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Morgan Stanley reports Q4 earnings, profits beat Wall Street's estimates

Morgan Stanley on Wednesday posted better-than-expected fourth-quarter profits on strong equities trading revenue and as the firm held the line on compensation costs.

Here are the numbers:

  • Earnings: $2.01 a share vs. estimate $1.91 a share, according to Refinitiv.
  • Revenue: $14.52 billion vs. estimate $14.6 billion

The bank said that earnings rose 9.2% from a year earlier to $3.7 billion, or $2.01 a share, topping the $1.91 estimate of analysts surveyed by Refinitiv. Companywide revenue rose 6.8% to $14.52 billion, just below the $14.6 billion estimate.

Unlike its rivals, which disclosed soaring compensation costs for Wall Street personnel in the quarter, Morgan Stanley kept a lid on expenses. The bank posted $5.49 billion in compensation expenses, essentially unchanged from a year earlier and below the $5.98 billion estimate of analysts surveyed by FactSet. That's in stark contrast to Goldman Sachs, where pay costs surged 31% to $3.25 billion.

Shares of the bank climbed 1.8% after rising more than 4% earlier in the session.

In a strategy update, Morgan Stanley boosted its target for return on tangible common equity to at least 20% from 17%. It's a milestone the bank has already achieved, reaching 20.2% returns in 2021 excluding merger costs, Barclays analyst Jason Goldberg said in a research note.

Morgan Stanley said that equities trading revenue in the quarter rose 13% from a year ago to $2.86 billion, roughly $400 million higher than the $2.44 billion FactSet estimate. The improvement was driven by rising prime brokerage revenue and a $225 million gain on a strategic investment.

Investment management also topped estimates, rising 59% to $1.75 billion because of the bank's Eaton Vance acquisition. Analysts had expected $1.66 billion.

Meanwhile, wealth management revenue rose 10% to $6.25 billion, essentially matching the $6.28 billion estimate, on rising asset management fees and growth in lending to clients.

Investment banking revenue rose 6% to $2.43 billion, just under the $2.54 billion estimate, on higher advisory fees from mergers activity. And fixed income trading generated $1.23 billion in revenue, a 31% decline from a year earlier and below the $1.47 billion estimate.

During a conference call with analysts, CEO James Gorman was asked how much longer he intended to stay atop the firm.

"I'm not leaving now, and I'm not going to be here in five years," he told analyst Mike Mayo. "I'll be here a few years and I want to see these integrations done. I want to see us firmly on this path and I want to hand it over to somebody else who can take us through the next decade."

Gorman said in the release that his firm posted record revenues for the full year 2021, helped by strong results across the firm's major businesses. Its giant wealth management division, a key element of Gorman's strategy that was grown through several splashy acquisitions, grew client assets by nearly $1 trillion in the year to $4.9 trillion, he said.

"We have a sustainable business model with scale, capital flexibility, momentum and growth," Gorman said.

Trading results across Wall Street have begun to return to more normal volumes after Goldman and JPMorgan Chase posted declines from record levels a year ago. Morgan Stanley has the No. 1 ranked equities trading business globally.

Shares of the bank have dropped 4.2% this year, underperforming the 8.6% gain of the KBW Bank Index.

JPMorgan and Citigroup each reported the smallest earnings beats in the last seven quarters, and Goldman Sachs missed estimates for fourth quarter profit because of elevated expenses. Wells Fargo had been the sole bright spot in bank earnings after it gave targets for higher interest income and lower expenses.