Morgan Stanley (MS) Q1 2023 Earnings

Morgan Stanley CEO James Gorman participates in a conversation-style interview with the Economic Club of Washington in Washington on September 18, 2013.

Yuri Gripas | Reuters

Morgan Stanley on Wednesday beat estimates for first-quarter profit and revenue on the back of better-than-expected trading results.

Here’s how the company fared:

  • Earnings of $1.70 per share, versus Refinitiv’s $1.62 forecast
  • Revenue of $14.52 billion, versus $13.92 billion forecast.

The New York-based bank said profit fell 19 percent to $2.98 billion, or $1.70 a share, from a year earlier due to declines in investment banking and trading. Companywide revenue fell 2% to $14.52 billion.

As revenue fell, the bank’s expenses rose 4% to $10.52 billion, fueled mostly by higher-than-expected compensation costs. The spending was $430 million more than StreetAccount’s estimate.

Higher costs helped squeeze profit margins in the bank’s wealth division and investment bank, Wells Fargo analyst Mike Mayo said in a research note. He also said that excluding the benefit of the low tax rate, the bank would have earned $1.64 per share.

The bank’s shares fell 3% in early trading.

Under CEO James Gorman, Morgan Stanley became a wealth management giant thanks to a series of acquisitions. The bank gets most of its revenue from wealth management and investments, more robust businesses that help offset volatile trading and banking results.

“The investments we made in our wealth management business continue to bear fruit as we added a solid $110 billion in net new assets this quarter,” Gorman said in the earnings release. “Equity and fixed income revenues were strong, although investment banking activity continued to be limited.”

Wealth management revenue rose 11% from the prior period to $6.56 billion, meeting StreetAccount’s estimate. The increase was fueled by a rise in net interest income on the back of higher interest rates and loan growth that offset lower income from asset management as markets fell.

Trading revenue for the first quarter fell from a year earlier as Wall Street pulled out of a pandemic-era boom, but Morgan Stanley traders managed to beat expectations by roughly $250 million.

The bank’s fixed-income traders generated $2.58 billion in revenue, beating StreetAccount’s estimate of $2.33 billion. Equity trading revenue of $2.73 billion beat expectations of $2.65 billion.

Investment banking revenue fell 24% to $1.25 billion due to fewer completed M&A deals and lower equity and debt issuance, beating a forecast of $1.2 billion.

Finally, the bank’s smallest business, investment management, reported a 3% drop in revenue to $1.29 billion, just short of a forecast of $1.34 billion, as management fees declined amid lower markets.

At the start of the conference call with analysts, Gorman addressed the turmoil caused by the March collapse of two US regional banks.

“I don’t think we’re in a banking crisis, but we have had and may still have a crisis among some banks,” Gorman said. “I think the situation is not at all comparable to 2008.”

He added that there is “no doubt” that Morgan Stanley will acquire more companies in wealth management, although nothing is imminent.

Morgan Stanley shares had risen 5.7% this year before Wednesday, outpacing a 16% drop in the KBW Bank index.

JPMorgan Chase, Citigroup, Wells Fargo and Bank of America beat expectations as the firms reaped more interest income amid rising interest rates. Goldman Sachs missed costs associated with offloading consumer loans amid its shift away from retail banking.

This story is evolving. Please check back for updates.

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