Morgan Stanley Tumbles Following Huge Revenue, FICC Miss

After 5 out of 5 big investment banks reported disappointing FICC revenue results, hopes that Morgan Stanley would break the trend when it reported Q4 earnings this morning were subdued at best, and for good reason: moments ago the bank reported Q4 FICC revenue of just $564MM, a huge miss to the $823MM consensus expectation and a whopping 30% drop Y/Y which was also the biggest fixed income revenue drop on Wall Street.

 

The result was so bad, one has to go back to 2015 to find a lower fixed income print.

Had that been all, the bank may have scraped through unscathed like so many of its peers, but whereas other banks managed to cover up for FICC disappointment with the outperformance of other groups, Morgan Stanley did not, and as a result Q4 revenue printed at just $8.55BN, far below the $9.35BN expected and in fact below the lowest estimate in the range of forecasts of $8.97BN to $10.17BN.

 

This also resulted in a painful EPS miss, with the company reported 73 cents in Q4 EPS (thanks to a 16.2% effective tax rate), far below the 89 cents expected, a number which excluded a 7 cent per share tax benefit. And while net income more than doubled to $1.53 billion from $643 million a year earlier, that is because the firm took a $1 billion charge related to the U.S. tax overhaul last year.

So alas whereas other banks could at least pretend the core business is doing well, MS had no such luxury, especially since equity sales and trading revenue of $1.93BN also missed expectations of $2.01BN; the number was "essentially unchanged from a year ago reflecting higher revenues in the financing business, partially offset by lower results in execution services." As for the FICC plunge, the bank said that this is due to "unfavorable market making conditions that resulted from significant credit spread widening and volatile rate movements."

The company's key Wealth Management group also disappointed, reporting pre-tax income from continuing operations of $1.0 billion compared with $1.2 billion a year ago. Net revenues for the current quarter were $4.1 billion compared with $4.4 billion a year ago principally driven by losses related to investments associated with certain employee deferred compensation plans. Even so, total client assets were $2.3 trillion and client assets in fee-based accounts were $1.0 trillion at the end of the quarter.

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