Morgan Stanley (NYSE:MS) clobbered quarterly estimates thanks to a huge surge in bond trading. More importantly, this just might be the breakthrough that MS stock investors have long been waiting for.
Like its peers before it this earnings season, Morgan Stanley rode a comeback in the lucrative business of fixed income trading. The market was certainly prepared for such good news after MS’s rivals all posted big gains in bond trading. Goldman Sachs Group Inc (NYSE:GS) just a day ago had broken its own good news on the debt-market front.
And even then, Morgan Stanley still managed to pull off a positive surprise.
It was just what the market needed to see after years and years of lackluster results out of one the most important and profitable business lines on the Wall Street.
As Nomura Securities Steven Chubak told Bloomberg TV:
“[It’s] the first time we’ve had two consecutive quarters of year-on-year growth in fixed [income] since 2012. It does feel like we may be hitting an inflection point here. Two quarters does not a trend make, but it’s certainly an encouraging sign.”
Be that as it may, Morgan Stanley wasn’t exactly a one-trick pony in the most recent three-month period. The firm delivered upside surprises in mergers and acquisitions, cost control and wealth management, notably the lending arm.
That’s why MS stock is up soundly on Wednesday morning.
Morgan Stanley By the Numbers
Morgan Stanley posted a 57% rise in third-quarter income to $1.6 billion, or 81 cents a share, from $1.02 billion, or 48 cents, in the year-ago period. Profit from continuing operations — which is what the Street cares about — came to 80 cents a share. Analysts on average were looking for earnings of just 63 cents a share, according to a survey by Thomson Reuters.
In other words, it was a whopper of an earnings beat.
Revenue rose 15% to $8.91 billion from $7.77 billion a year earlier, which was one of the bank’s worst quarters in memory. But just as bond trading destroyed the year-ago quarter, it put this year’s period over the top.
Adjusted revenue from sales and trading of fixed income securities nearly tripled to $1.5 billion. Equity trading, which has been going through a period of more muted gains across the industry, increased 5.6% to $1.9 billion. That topped analysts projections for $1.83 billion.
Investment banking revenue slipped 7% to $1.1 billion year-over-year, but then that was more than expected. Wealth management — an area that Morgan Stanley is betting on heavily — beat estimates with a 2% gain in revenue to $3.88 billion.
Morgan Stanley stock got a nice boost from the better-than-expected earnings report to place it firmly in positive territory for the year-to-date.
If this Street-wide recovery in fixed income is for real — and MS can keep building on its lower risk-higher reward wealth management activities — Morgan Stanley stock should continue on its recent market-beating ways.
Sentiment would appear to be back on the side of MS stock. Now it just has to string a few more strong quarters like this last one together.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
