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Morgan Stanley Expects Q3 Trading Performance to Not Match Q2

At the 2020 Barclays Global Financial Services Conference, Morgan Stanley’s MS CFO, Jonathan Pruzan, provided trading and investment banking business guidance for the third quarter. Pruzan said that despite good activity levels in August as well as “no real slowdown” witnessed by the company, the performance of its sales and trading, and investment banking (“IB”) business will not be as great in the third quarter as it was in the previous reported quarter.

Pruzan stated, “From an Institutional Securities Group (ISG) perspective, we’re not going to have as good a quarter as we did in the second quarter, but I would say it’s sort of better than a typical summer quarter.”

Notably, in the second quarter, driven by heightened market volatility and higher client activity resulting from the coronavirus outbreak, Morgan Stanley’s trading business delivered a stellar performance. Its fixed income trading revenues soared 168% year over year and equity trading income grew 23%. Overall trading revenues jumped 68% from the year-ago period.

Moreover, despite weakness in advisory business, the performance of the IB business was impressive. In second-quarter 2020, IB fees rose 39% from the year-ago quarter.

Thus, driven by higher IB and trading revenues, Morgan Stanley’s second-quarter Institutional Securities segments’ net revenues increased 56% year over year.

While Pruzan mentioned that Morgan Stanley is still seeing “very constructive markets” across all parts of its sales and trading, and investment banking business, the performance of these businesses will not be as impressive in the to-be-reported quarter as it was in the second quarter.

Notably, at the same conference, JPMorgan’s JPM CFO, Jennifer Piepszak stated that the company expects markets revenues to be up 20% year over year for the third quarter, while IB fees are anticipated to rise in a mid-single-digit rate. Further, Piepszak noted that “mortgage production remains very strong here in the third quarter.”

Also, Bank of America’s BAC CEO, Brian Moynihan, said that the company’s trading revenues are projected to be up 5-10% year over year in the third quarter, driven by a rise in both equity and fixed income.

Also, IB fees are anticipated to rise 3-5% from the prior-year period. BofA also sees solid wealth management revenues and modest growth in consumer fees during the quarter, given “the spending coming up the card income.”

Notably, the performance of Morgan Stanley’s Institutional Securities segment mainly depends on the overall performance of the capital markets, which is very uncertain. Thus, the company is undertaking several initiatives to restructure operations, with a goal of increasing reliance on segments that are less dependent on capital markets like the Wealth Management (“WM”) segment.

At the conference, Pruzan also stated that the WM segment’s net interest income (“NII”) is anticipated to “drift down a little bit” in the third quarter because the second quarter benefited from increased LIBOR rates as well as spreads.

Notably, the WM segment’s total client assets have witnessed a three-year CAGR of 6.7% (2017-2019), with the uptrend continuing in the first half of 2020. Moreover, the planned acquisition of E*Trade Financial ETFC will likely strengthen the segment’s performance.

At the conference, Pruzan confirmed that Morgan Stanley is on track to complete the $13-billion all-stock E*TRADE Financial acquisition deal in the fourth quarter of this year.

Over the past three months, shares of Morgan Stanley have gained 7.1% compared with the industry’s rally of 3.6%.






Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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