) earnings per share from continuing operations of 68 cents
outpaced the Zacks Consensus Estimate and prior-year quarter
figure of 60 cents, reflecting top-line growth. Moreover, this
was the seventh consecutive quarter in which the company
delivered a positive earnings surprise.
Shares of Morgan Stanley gained nearly 3% in the pre-trading
session, indicating investors' positive response following the
earnings release. The movement of the stock price when the
trading session opens will give a better idea about whether
Morgan Stanley has been able to meet expectations.
Results benefited from rise in both net interest and fee income,
partially offset by a slight increase in operating expenses.
Moreover, increase in net revenue across all segments and
improved asset position were the other positives.
However, including debt-related credit spreads and Debt Valuation
Adjustment (DVA), net income from continuing operations was $1.5
billion or 72 cents per share. This was significantly up from
$981 million or 49 cents per share in the year-ago quarter.
Performance in Detail
Net revenue (excluding DVA adjustments) for the quarter was $8.8
billion, up 4% year over year. Moreover, it outpaced the Zacks
Consensus Estimate of $8.6 billion. After taking into
consideration the positive revenues pertaining to changes in
Morgan Stanley's debt-related credit spreads and DVA, net revenue
grew 10% year over year to $8.9 billion.
Net interest income was $308 million in the reported quarter, up
69% from the year-ago quarter driven by 14% fall in interest
expenses. Further, total non-interest revenue increased 8% year
over year to $8.6 billion. All the non-interest income components
grew from the prior-year quarter.
Total non-interest expenses were $6.6 billion, up 1% from the
previous-year quarter. The rise was primarily due to increase in
brokerage, clearing and exchange fees, compensation and benefits
expenses and marketing and business development expenses,
partially offset by lower occupancy and equipment costs as well
as other expenses.
Morgan Stanley's compensation to net revenue ratio for the
reported quarter was 48% versus 52% in the year-ago quarter.
Institutional Securities (IS)
: Pre-tax income from continuing operations was $1.4 billion, up
69% from the prior-year quarter. Net revenue was $4.6 billion, up
13% from the year-ago quarter. Further, excluding DVA, net
revenue was $4.5 billion, rising 2% on a year-over-year basis.
Wealth Management (WM)
: Pre-tax income from continuing operations was $691 million,
increasing 16% from $597 million in the year-ago quarter. Net
revenue was $3.6 billion, improving 4% from the year-ago quarter
driven by rise in asset management fees, partially offset by a
fall in transactional revenues.
Investment Management (IM)
: Pre-tax income from continuing operations was $263 million, up
41% year over year. Net revenue was $740 million, up 15% from the
year-ago quarter. The rise was driven by gains on investments in
Merchant Banking and improved results from Traditional Asset
Management. These were partially offset by lower gains on
investments in Real Estate Investing.
As of Mar 31, 2014, total assets under management or supervision
were $382 billion, up 12% from $341 billion as of Mar 31, 2013.
The rise primarily reflected positive flows and market
As of Mar 31, 2014, book value per share was $32.38, up from
$31.21 as of Mar 31, 2013. Tangible book value per share was
$27.41, up from $27.38 as of Mar 31, 2013.
Morgan Stanley's Tier 1 capital ratio (transitional) was 15.6%
versus 13.9% in the year-ago quarter and Tier 1 common capital
ratio (transitional) was 14.1% versus 11.5% in the prior-year
During the reported quarter, Morgan Stanley bought back nearly
4.9 million shares for nearly $150 million. Further, following
the Federal Reserve's approval of its 2014 capital plan, the
company announced share repurchase of up to $1 billion of common
stock, beginning from the second quarter of 2014 through the
first quarter of 2015.
Along with the earnings release, Morgan Stanley announced a 50%
hike in its quarterly dividend to 10 cents per share. The
dividend will be paid on May 15 to shareholders of record as on
Morgan Stanley's initiatives to offload its non-core assets for
lowering balance sheet risks and shifting focus on the less
capital incentive IM and WM segments are commendable. Further,
the full control of Morgan Stanley Wealth Management JV has aided
diversifying the company's revenue base. This will, in turn
stabilize its earnings going forward.
Further, Morgan Stanley received approval of its 2014 capital
plan from the Federal Reserve, which depicts strong capital
position. Moreover, enhanced capital deployment activities
continue to boost shareholders' value.
Additionally, Morgan Stanley's organic and inorganic growth
initiatives continue to be significant growth drivers. The
company remains focused on diversifying its revenue base by
expanding footprint in emerging economies.
However, there are concerns related to Morgan Stanley's
financials being pressured by new regulatory requirements and
intense pricing competition. Also, stringent capital norms may
somewhat lower the company's flexibility with respect to its
investments and lending volumes. Nevertheless, the company's
fundamentals are highly promising with a diverse business model,
a stable balance sheet and strong capital position.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
Performance of Other Major Banks
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JPMORGAN CHASE (JPM): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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Among other banking giants,
Wells Fargo & Co.
) reported better-than-expected results, upholding the image of
the banking sector. However,
JPMorgan Chase & Co.
) started the season with a significant miss due to its inability
to endure the tough industry circumstances.
Though the impact of sluggishness in the industry is evident in
the results of banks so far, the strength to dodge such headwinds
appears much better than expected. Both Wells Fargo and Citigroup
could override the challenges and beat estimates with ease.