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Thursday, July 19, 2018 5:50:35 AM
Morgan Stanley Net Surges 39%
Upgrades
Today : Thursday 19 July 2018
Lenders complete strong earnings season, lifted by economy, lower taxes
By Liz Hoffman
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 19, 2018).
Morgan Stanley's second-quarter earnings rose 39% from a year ago, wrapping up a big-bank earnings season that showed continued strength in the economy and few signs that global tensions are spilling over into the financial sector.
The smallest of the big six U.S. banks by assets reported $2.4 billion in profit on $10.6 billion revenue. Earnings per share of $1.30 beat the $1.11 expected by analysts polled by Thomson Reuters. Revenue also topped expectations by about $500 million.
The last time Morgan Stanley reported two consecutive quarters of $10 billion-plus revenue was 2007, just before the financial crisis took hold. Its $21.8 billion revenue over the first six months of 2018 is a firm record.
The bank, run by Chief Executive James Gorman, is in the late innings of a multiyear turnaround effort. Mr. Gorman's push into wealth management -- Morgan Stanley manages $2.4 trillion on behalf of about 3.5 million U.S. households -- has steadied its earnings and reassured investors, who had stayed away after repeated burns.
Mr. Gorman, who turned 60 last week, appears to be in harvesting mode and has shown little appetite to set ambitious new targets or chase new businesses.
"A member of my team [asked me] recently, 'what's our strategy?' How about 'make some money?'" Mr. Gorman said Wednesday.
Shares rose more than 2.7% in afternoon trading, outpacing other bank shares.
Steady economic growth, lower taxes, an uptick in demand for loans, and renewed volatility in the price of some securities have all helped big banks this year. Goldman Sachs Group Inc., Morgan Stanley's closest peer, on Tuesday reported its best first half in nine years.
So far, escalating global tensions, trade battles and a shrinking gap between the cost of short- and long-term debt -- which has historically signaled a coming economic pullback -- haven't spooked investment funds and corporations that use banks to trade securities, advise on deals and arrange financing.
"Corporations feel good, consumers feel good," Morgan Stanley's finance chief, Jonathan Pruzan, said in an interview Wednesday. "The pockets of volatility seem to be isolated and not rolling over into the broader market.
"If that changes, and it starts to put people in defensive mode, we'll have different second half of the year," he said.
Morgan Stanley's return on equity, a measure of how profitably it invests shareholders' money, stood at 13% in the quarter, hitting the goal Mr. Gorman had set -- though with an assist from the lower taxes.
For the last few years, Morgan Stanley's giant retail brokerage has been the star, gathering assets and churning out reliable profits. This quarter, though, its Wall Street businesses shone.
Combined trading and investment-banking revenues of $5.7 billion were 20% higher than last year and capped the best first-half in those businesses since 2007. Fees from merger advice, stock-trading and stock-underwriting were all up double digits from a year ago. Debt trading and underwriting, businesses where Morgan Stanley is smaller, grew but less dramatically.
The quarter provided a boost for Ted Pick, a longtime trading executive who just last week was given oversight for investment banking, too. The move put the 49-year-old in charge of all the firm's Wall Street businesses and marked him as a frontrunner to eventually succeed Mr. Gorman, who is likely to stay on another three to five years.
Morgan Stanley's banking assets, the loans and other instruments sitting in its regulated banking entity, topped $200 billion for the first time in the quarter. The firm converted to a Main Street bank during the financial crisis and has been pushing to grow that business. Corporate loans were up 21% year over year.
On the consumer side, where the firm has been pushing mortgages and loans backed by brokerage portfolios, progress has been hard-won, slowed down by its decision to bring more of its mortgage business in-house last year.
A new savings-like account has boosted deposits, meaning the firm will need to ramp up lending as quickly or else lose money on interest. "The bank will remain a very important source of growth," Mr. Gorman said.
Morgan Stanley's smallest division, asset management, posted a 4% increase in revenue. Mr. Gorman has a soft spot for that business -- which accounts for just 7% of the firm's overall revenue but requires little capital to run -- and is aiming to grow it, in part through acquisitions.
Upgrades
Today : Thursday 19 July 2018
Lenders complete strong earnings season, lifted by economy, lower taxes
By Liz Hoffman
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 19, 2018).
Morgan Stanley's second-quarter earnings rose 39% from a year ago, wrapping up a big-bank earnings season that showed continued strength in the economy and few signs that global tensions are spilling over into the financial sector.
The smallest of the big six U.S. banks by assets reported $2.4 billion in profit on $10.6 billion revenue. Earnings per share of $1.30 beat the $1.11 expected by analysts polled by Thomson Reuters. Revenue also topped expectations by about $500 million.
The last time Morgan Stanley reported two consecutive quarters of $10 billion-plus revenue was 2007, just before the financial crisis took hold. Its $21.8 billion revenue over the first six months of 2018 is a firm record.
The bank, run by Chief Executive James Gorman, is in the late innings of a multiyear turnaround effort. Mr. Gorman's push into wealth management -- Morgan Stanley manages $2.4 trillion on behalf of about 3.5 million U.S. households -- has steadied its earnings and reassured investors, who had stayed away after repeated burns.
Mr. Gorman, who turned 60 last week, appears to be in harvesting mode and has shown little appetite to set ambitious new targets or chase new businesses.
"A member of my team [asked me] recently, 'what's our strategy?' How about 'make some money?'" Mr. Gorman said Wednesday.
Shares rose more than 2.7% in afternoon trading, outpacing other bank shares.
Steady economic growth, lower taxes, an uptick in demand for loans, and renewed volatility in the price of some securities have all helped big banks this year. Goldman Sachs Group Inc., Morgan Stanley's closest peer, on Tuesday reported its best first half in nine years.
So far, escalating global tensions, trade battles and a shrinking gap between the cost of short- and long-term debt -- which has historically signaled a coming economic pullback -- haven't spooked investment funds and corporations that use banks to trade securities, advise on deals and arrange financing.
"Corporations feel good, consumers feel good," Morgan Stanley's finance chief, Jonathan Pruzan, said in an interview Wednesday. "The pockets of volatility seem to be isolated and not rolling over into the broader market.
"If that changes, and it starts to put people in defensive mode, we'll have different second half of the year," he said.
Morgan Stanley's return on equity, a measure of how profitably it invests shareholders' money, stood at 13% in the quarter, hitting the goal Mr. Gorman had set -- though with an assist from the lower taxes.
For the last few years, Morgan Stanley's giant retail brokerage has been the star, gathering assets and churning out reliable profits. This quarter, though, its Wall Street businesses shone.
Combined trading and investment-banking revenues of $5.7 billion were 20% higher than last year and capped the best first-half in those businesses since 2007. Fees from merger advice, stock-trading and stock-underwriting were all up double digits from a year ago. Debt trading and underwriting, businesses where Morgan Stanley is smaller, grew but less dramatically.
The quarter provided a boost for Ted Pick, a longtime trading executive who just last week was given oversight for investment banking, too. The move put the 49-year-old in charge of all the firm's Wall Street businesses and marked him as a frontrunner to eventually succeed Mr. Gorman, who is likely to stay on another three to five years.
Morgan Stanley's banking assets, the loans and other instruments sitting in its regulated banking entity, topped $200 billion for the first time in the quarter. The firm converted to a Main Street bank during the financial crisis and has been pushing to grow that business. Corporate loans were up 21% year over year.
On the consumer side, where the firm has been pushing mortgages and loans backed by brokerage portfolios, progress has been hard-won, slowed down by its decision to bring more of its mortgage business in-house last year.
A new savings-like account has boosted deposits, meaning the firm will need to ramp up lending as quickly or else lose money on interest. "The bank will remain a very important source of growth," Mr. Gorman said.
Morgan Stanley's smallest division, asset management, posted a 4% increase in revenue. Mr. Gorman has a soft spot for that business -- which accounts for just 7% of the firm's overall revenue but requires little capital to run -- and is aiming to grow it, in part through acquisitions.
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