Can Morgan Stanley Recover This Quarter? Here’s What to Watch

Photo Credit: Sergey Shpakovsky

Morgan Stanley (MS) Financials - Capital Markets | Reports April 18, Before Market Opens

Key Takeaways:

• The Estimize consensus is calling for EPS of $0.54 on $8.315 billion in revenue, 8 cents higher than Wall Street on the bottom line and $535 on top
• Investment banking units have suffered from weak trading activity and slower underwriting activity
• Morgan Stanley expects to see greater revenue from its Wealth Management units, supported by higher net interest income and lower transaction fees.
• What are you expecting for MS? Get your estimate in here!

This Monday, Morgan Stanley kicks things off for investment banks with first quarter earnings. Despite better than expected fourth quarter earnings, the bank has a track record of disappointing investors. In the past 12 months the stock is down 29.7% due to weak capital markets, slower rate increases and lingering energy concerns. The investment bank line, in particular, has suffered from weak trading activity, slower underwriting activity, ongoing litigation expenses and an ever changing regulatory environment.

Morgan Stanley is seeing a slew of unfavorable revisions activity ahead of its earnings this Monday. Per share estimates have been cut by 40% while revenue is down 13%, since the bank last reported. As a result, the Estimize consensus is calling for EPS of $0.54 on $8.315 billion in revenue, 8 cents higher than Wall Street on the bottom line and $535 on top. Compared a year earlier, earnings is predicted to fall 26%, while revenue is tracking a 12% fall. 

Generally speaking Investment banking and energy will be Morgan Stanley’s two most volatile business lines this quarter. Investment banking units have been in a downturn primarily driven by lower underwriting revenues and reduced equity activity. Energy on the other hand is a central theme plaguing all the banks, with Morgan Stanley exposed to $15.9 billion in sector loans. Fortunately, 60% of these industry loans and lending commitments are with investment grade counterparties.

On the bright side, Morgan Stanley expects to see increased revenue in its Wealth Management units. Greater net interest income and lower transaction fees on a less active trading patterns calendar is like to support revenue growth in this segment. Meanwhile, the bank has begun client re-risking and re-engagement which could generate very robust revenues in the near future.