Morgan Stanley outpaces expectations; Investors continue to take profits in the money centers
Morgan Stanley (MS) reported strong financial results for Q2, surpassing both revenue and earnings per share (EPS) expectations. The bank reported net revenue of $15.02 billion, beating the estimated $14.27 billion. EPS came in at $1.82, significantly higher than the expected $1.65, reflecting robust performance across various segments of the business.
Shares of MS are sliding lower which has been typical for banks this earnings season as strong rallies into the report have led to profit-taking. MS is of particular interest given its hefty valuation (2.50x TBVPS and 14x earnings) compared to peers. Shares of MS are testing the 10-day moving average ($102) in pre-market trade.
The Institutional Securities segment saw a remarkable revenue growth of 23.5% year-over-year to $6.98 billion, driven by strong client activity in equities and robust debt underwriting results in investment banking. Equities sales and trading revenue rose to $3.02 billion, exceeding the estimate of $2.68 billion, while Fixed Income, Currencies, and Commodities (FICC) sales and trading revenue came in at $2.00 billion, surpassing the $1.86 billion estimate.
In the Wealth Management segment, net revenue was slightly below expectations at $6.79 billion compared to the estimated $6.86 billion. However, the segment achieved record asset management revenue, supported by fee-based asset flows of $26 billion for the quarter and $52 billion for the first half of the year. The business added net new assets of $36 billion in the quarter and $131 billion in the first half of the year, reflecting strong client engagement and a positive market environment.
Investment Banking revenues showed significant growth, up 51% from the previous year. This was primarily driven by higher advisory revenues from completed M&A transactions and strong equity and fixed income underwriting revenues. Advisory revenue was $592 million, above the $523.3 million estimate, while equity underwriting revenue reached $352 million, slightly exceeding the $346.8 million estimate. Fixed income underwriting revenue significantly surpassed expectations at $675 million, compared to the estimated $515.8 million.
The Investment Management segment also posted solid results, with revenue increasing by 8.2% year-over-year to $1.39 billion. This growth was driven by higher asset management revenues due to increased long-term average assets under management (AUM). Despite a minor shortfall in the assets under management figure of $1.52 trillion against the estimated $1.53 trillion, the segment benefitted from positive client flows and a favorable market environment.
Overall, Morgan Stanley delivered a strong quarter, reflecting its strategic strengths in wealth management, institutional securities, and investment banking. The firm's return on equity was 13%, above the estimated 11.7%, and return on tangible equity was 17.5%, beating the 15.7% estimate. These results highlight Morgan Stanley's ability to navigate a challenging economic environment and capitalize on market opportunities to drive shareholder value.