Morgan Stanley easily beats Wall Street estimates as bond trading revenue doubles; shares rise

Morgan Stanley building

Morgan Stanley reports better-than-expected quarterly results, bolstered by strong performances from its trading and investment banking businesses.

The report, boosted by the doubling of bond-trading revenue, alleviated concerns that the bank faced similar challenges in the quarter as another big trading-centered firm on Wall Street, Goldman Sachs . Goldman reported on Tuesday earnings that missed expectations, citing a low volatility trading environment.

After Morgan Stanley's earnings report, its stock rose about 2 percent in the premarket.

Here's Morgan Stanley's report card for the first quarter:

  • EPS: $1 versus 88 cents expected by Thomson Reuters analysts' consensus
  • Revenue: $9.7 billion versus $9.266 billion expected by Thomson Reuters analysts' consensus
  • Global wealth management revenue: $4.1 billion versus $4.09 billion expected by StreetAccount analysts' consensus
  • Institutional securities: $5.15 billion versus $4.69 billion expected by StreetAccount analysts' consensus
  • Investment banking: $1.55 billion versus $1.16 billion expected by StreetAccount analysts' consensus
  • Fixed income trading: $1.7 billion versus $1.58 billion expected by StreetAccount analysts' consensus
  • Equities trading: $2 billion $1.96 billion expected by StreetAccount analysts' consensus

Morgan's earnings per share nearly doubled from last year's first quarter, while sales rose 19.7 percent.

Bond trading revenue rose to $1.7 billion from $873 million in the year-earlier period. Equities trading revenue decreased marginally but still came in above analysts' expectations. The company's institutional securities segment, which encompasses fixed income and equities trading, notched revenues of $5.15 billion, marking a 39.2 percent year-over-year increase.

"We reported one of our strongest quarters in recent years. All our businesses performed well in improved market conditions," CEO James Gorman said in a statement. "We are confident in our business model and the opportunities ahead, while recognizing that the environment remains
uncertain."

Goldman Sachs shocked the Street this week with its first earnings miss since 2015 and its first sales disappointment since last year.

Weighing on Goldman's results were flat sales from bond, currency and commodities trading and a 6 percent drop in equities trading revenue .

Goldman's stock hit a near five-month low on Tuesday and shaved off 73.07 points off the Dow Jones industrial average, which fell 113.64 points. Morgan Stanley shares dropped nearly 1 percent on Goldman's miss.

Morgan Stanley's stock, along with other bank shares, has hit a rough patch over the past month, dropping about 9 percent in that time period.

The sharp move lower comes at a time when the so-called hard data — GDP, inflation and retail sales, among others — has faltered, pushing Treasury yields lower along with the odds of a June Federal Reserve rate hike. The about-face on rates could put pressure on bank margins again just when they had started expanding.

On Friday, the Labor Department said the Consumer Price Index — a key gauge of inflation — posted its biggest drop in more than two years in March, while the Commerce Department said retail sales dropped more than expected last month.

The benchmark 10-year Treasury note yield traded below 2.2 percent Tuesday after hitting 2.6 percent just over a month ago.

US 10-year yield in past month

Source: FactSet

JefferiesAnd the Best Place to Work in the global financial markets 2016 is...

Register for Financial Markets News Alerts