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Morgan Stanley’s (MS - Free Report) first-quarter 2022 adjusted earnings of $2.06 per share have easily outpaced the Zacks Consensus Estimate of $1.69. The bottom line reflects a decline of 7% from the year-ago quarter.
The stock moved up 1.5% in pre-market trading. Notably, the full-day trading session will display a clearer picture.
Morgan Stanley’s trading business performed well. While fixed-income trading revenues declined 1% year over year, equity trading income rose 11%.
However, the performance of the investment banking (“IB”) business was not great. Equity underwriting fees decreased 83% from the prior-year quarter’s level and fixed-income underwriting declined 32%. Advisory fees were up 97% year over year. Therefore, IB fees declined 37%.
While higher net interest income, mainly driven by a rise in total loan balance (up 21%), supported the top line to some extent, a decline in non-interest revenues acted as a headwind.
Operating expenses declined year over year, which was a positive.
Including integration-related expenses for the E*Trade Financial (closed October 2020) and Eaton Vance (closed March 2021) deals, net income applicable to common shareholders was $3.5 billion, down 11% from the year-ago quarter.
Revenues & Expenses Decline
Net revenues were $14.8 billion, down 6% from the prior-year quarter. The top line surpassed the Zacks Consensus Estimate of $14 billion.
Net interest income was $2.2 billion, up 9% from the year-ago quarter. The upside was largely due to a 9% rise in interest income.
Total non-interest revenues of $12.6 billion decreased 8% year over year.
Total non-interest expenses were $10.2 billion, down 3% year over year.
Provision for credit losses was $57 million against provision benefits of $98 million recorded in the prior-year quarter.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income was $2.8 billion, down 17% from the prior-year quarter. Net revenues were $7.7 billion, down 11%. The downside was due to a fall in investment banking revenues and fixed-income trading revenues, partly offset by higher equity trading revenues.
Wealth Management: The segment includes the results of E*Trade Financial. Pre-tax income totaled $1.6 billion, down 2% year over year. Net revenues were $5.9 billion, decreasing marginally from the prior-year quarter due to lower transactional and other revenues.
Total client assets as of Mar 31, 2022, were $4.8 trillion, up 13% year over year.
Investment Management: The segment includes the results of Eaton Vance. Pre-tax income was $228 million, falling 38% from the year-ago quarter. Net revenues were $1.3 billion, up 2%. The upswing was driven by higher asset management and related fees.
As of Mar 31, 2022, total assets under management or supervision were $1.4 trillion, up 2% from Mar 31, 2021.
Strong Capital Position
As of Mar 31, 2022, book value per share was $54.18, up from $52.71 recorded in the corresponding period of 2021. Tangible book value per share was $39.91, up from $38.97 as of Mar 31, 2021.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.6% compared with 19.2% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.9%, down from 17.4%.
Capital Deployment Update
In the reported quarter, Morgan Stanley repurchased shares worth $2.9 billion.
Our Take
Elevated expenses due to investments in franchise will likely continue to hurt Morgan Stanley’s profits to some extent in the near term. Despite the expected rate hikes, relatively lower interest rates and uncertainty about the performance of the capital markets make us apprehensive.
Morgan Stanley Price, Consensus and EPS Surprise
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Morgan Stanley price-consensus-eps-surprise-chart | Morgan Stanley Quote
Currently, Morgan Stanley carries a Zacks Rank #4 (Sell).
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