Moments ago Morgan Stanley became the fourth major US bank to report earnings which unlike its previously reporting peers, JPM, Wells and Citi, were far more simple to digest due to the lack of bank loan balance sheet arbitrage and reliance on Net Interest Margin. After all, after Goldman Sachs, Morgan Stanley is the closest to relying almost entirely on marginal trading revenue as well as its all important wealth management unit.
The results were quite ugly: total revenue of $7.8 billion barely changed from the previous quarter, and was down 21% from Q1 2015, however due to the sharp drop in consensus estimates in recent months, revenues was a "beat" to the $7.76 billion expected.
Earnings likewise were ugly, tumbling by 53% from $2.4 billion to $1.1 billion, or $0.55 per share. This too was a beat as a result of a sharp plunge in Q1 EPS expectations in recent months.
And while the bank's wealth management unit, which at March 31 had total client assets of $2 trillion, kept revenues flat, declining just 2% to $2.6 billion in Q1, it was the plunge in trading revenue which raised some eyebrows: plunging 43% from a year ago, the company reported just $2.1 billion in revenue from trading, while investment banking dropped a notable 18% to $1.1 billion in Q1. Hardly the results one would associate with stable growth.
The full breakdown of MS' income statement:
Some highlights from the press release:
- Institutional Securities net revenues were $3.7 billion reflecting challenging market conditions in Fixed Income & Commodities sales and trading and underwriting, with strength in Equity sales and trading and M&A advisory.
- Equity sales and trading net revenues of $2.1 billion decreased from $2.3 billion from a year ago primarily reflecting declines in cash equities in volatile global equity markets, partly offset by continued strength in prime brokerage.
- Compensation expenses of $1.4 billion decreased from $2.0 billion a year ago on lower revenues. Non-compensation expenses of $1.4 billion for the current quarter decreased from $1.6 billion a year ago primarily reflecting lower litigation costs
And the all important FICC:
- Fixed Income & Commodities sales and trading net revenues of $873 million decreased from $1.9 billion a year ago. Results reflect lower commodities revenues given the depressed energy price environment and the disposition of the Oil Merchanting business in the fourth quarter of 2015. Results for the current quarter also reflect lower levels of client activity in rates and foreign exchange and a challenging credit environment.
Hint: clients better step up their activity soon.