Morgan Stanley, one of the two remaining large, independent investment banks and a perpetual laggard to its rival Goldman Sachs, has something to be proud of this earnings season: expectations beating earnings and revenue.
With adjustments, the bank brought $8.1 billion in revenue and $1 billion in profit, compared with $7.5 billion and $560 million a year ago. Both figures beat analysts expectations of $7.7 billion in revenue and $810 million in profit.
The revenue number in particular is striking: It rose about 7.4% from a year ago, compared to Goldman’s 20% fall over the same period.
Morgan Stanley was able to beat expectations on earnings thanks to bringing in more revenue, while Goldman was only able to do so thanks to dramatic cuts in compensation that may not be sustainable over the longer term.
“Our strategy to combine a world class investment bank with the stability of the largest U.S. wealth management franchise and strong investment management is enabling us to deliver exceptional advice and execution for our clients as well as stronger returns for our shareholders,” CEO James Gorman said in a statement. “Overall, our stronger year-over-year revenues and net income reflect the progress we have made to position the Firm well for the future.”
Even calling Morgan Stanley a pure investment bank these days is a little misleading. Like its peers on Wall Street, the bank suffered a huge loss in sales and trading revenue from bonds, currencies, and commodities (FICC) — a 43% decrease from last year — only bringing in $835 million in revenue compared with $1.5 billion last year, which has traditionally driven investment banking revenue. This nearly matches Goldman’s 44% drop.
But the bank’s wealth management division, a focus for Gorman going forward, brought in $3.5 billion in revenue and $668 million in net income, compared to $247 million in profits last year.
Without adjusting for a change in value in its own debt that investors tend to ignore going forward, Morgan’s gains this quarter were more dramatic — the third quarter last year, Morgan Stanley reported an unadjusted $1 billion loss compared to a gain of $890 million this quarter without adjustments. And no matter which way the earnings are reported, investors are happy: In premarket trading, the bank’s stock is up more than 3%.