Morgan Stanley (MS) Third Quarter Earnings Beat, Revenue and Costs Fall – October 14, 2022

Morgan Stanleyit is (MRS Free Report) third-quarter 2022 adjusted earnings of $1.53 per share beat Zacks’ consensus estimate of $1.51. Net income reflects a 25% decrease compared to the prior year quarter. Our revenue estimate was $1.52.

The performance of the investment banking (“IB”) activities was not good. Equity underwriting fees were down 78% from the prior year quarter and fixed income underwriting was down 35%. Advisory fees were down 46% year over year. As a result, IB fees have decreased by 55%.

While an increase in net interest income, driven by an increase in the total loan balance (up 16%) and higher interest rates, supported turnover to some extent, a decline in non-interest income acted as a headwind.

Nevertheless, as expected, Morgan Stanley’s trading activity performed well. While fixed income trading revenue was up 33% year over year, equity trading revenue was down 14%.

Operating expenses decreased year over year, which is positive.

Including expenses related to the integration of the E*Trade Financial (closed October 2020) and Eaton Vance (closed March 2021) transactions, net income applicable to common shareholders was $2.5 billion, down 30% from the prior year quarter.

Lower income and expenses

Net revenue was $13 billion, down 12% from the prior year quarter. The top line slightly missed the Zacks consensus estimate of $13.1 billion. Our revenue estimate was $13.12 billion.

Net interest income was $2.5 billion, up 22% from the prior year quarter. The rise was largely fueled by a 160% rise in interest income.

Total non-interest revenue of $10.5 billion was down 17% year over year.

Total non-interest expense was $9.6 billion, down 3% year-over-year.

Provision for credit losses was $35 million, up 46% from the prior year quarter.

Quarterly sector performance

Institutional securities: Pretax profit was $1.6 billion, down 45% from the prior year quarter. Net revenue was $5.8 billion, down 22%. The decline was the result of lower investment banking revenue, partially offset by higher fixed income trading revenue.

Wealth management: The segment includes the results of E*Trade Financial. Pretax profit totaled $1.6 billion, up 8% year-over-year. Net income was $6.1 billion, up 3% from the prior year quarter due to higher net interest income.

Total client assets were $4.1 trillion as of September 30, 2022, down 11% year-over-year.

Investment management: The segment includes the results of Eaton Vance. Pretax profit was $116 million, down 69% from the year-ago quarter. Net revenues were $1.2 billion, down 20%. The decrease is due to lower asset management fees and related commissions.

As of September 30, 2022, total assets under management or supervision stood at $1.3 trillion, down 16% from September 30, 2021.

Strong capital position

As of September 30, 2022, the book value per share was $54.46, compared to $54.56 for the corresponding period of 2021. The tangible book value per share was $39.93, compared to $40.47 as of September 30. 2021.

Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.1% versus 18.9% in the prior year quarter. The Common Equity Tier 1 capital ratio was 15.2% compared to 17.2%.

Capital Deployment Update

During the quarter under review, Morgan Stanley repurchased shares worth $2.6 billion.

Our opinion

High spending from franchise investments will likely continue to hurt Morgan Stanley’s earnings to some extent in the near term. The uncertainty about the performance of the financial markets makes us worried. Nonetheless, the company’s increased focus on business lending will likely continue to contribute to revenue. In addition, higher interest rates should support growth in net interest income.

Currently, Morgan Stanley carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dates of publication of the results of other companies

Citizens Financial Group (CFG Free Report) is expected to report results on October 19.

Zacks’ consensus estimate for Citizens Financial’s third-quarter earnings of $1.22 indicates no change from the reported figure for the year-ago quarter.

Fifth Third Bancorp (FITB Free Report) is set to release its third quarter 2022 results on October 20.

Zacks’ consensus estimate for Fifth Third’s third-quarter earnings is pegged at 98 cents, indicating a 4.3% year-over-year increase.

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