Morgan Stanley Beats Despite 9% Drop In Revenue, Helped By Cost-Cutting, Strong FICC; Shares Jump

Tyler Durden's picture

Following the example set by the other banks, earlier today Morgan Stanley, the last big bank to report earnings,  said its profit fell 12% in Q2 on a 9% drop in revenue even as the company weathered volatile markets that affected its investing and corporate clients. The EPS of $0.75, however, beat sharply lowered expectations of $0.60 on the back of sharp cost-cutting measures, pushing its shares up 3% in the premarket.

Net income declined to $1.58 billion, or 75 cents a share, from $1.81 billion, or 85 cents a share, a year ago. Revenue tumbled 8.6% to $8.91 billion. The results come a day after Goldman Sachs, Morgan Stanley’s great Wall Street rival, also disclosed a worse-than-expected performance from its equities unit.

Morgan Stanley's own trading revenue down 7.1% to $3.26 billion from $3.5 billion a year ago, but when excluding an accounting adjustment, trading revenue fell 2%.  Investment-banking revenue fell 23% to $1.11 billion from $1.44 billion in the second quarter of 2015. Fees from advising on mergers and other deals rose 17% to $497 million from $423 million a year ago. Revenue on stock and bond underwriting slipped 40% to $611 million from $1.02 billion in the same period a year prior. This, however, was a solid beat to expectations with MS outperforming consensus in virtually every category, with particular strenght in FICC. 

  • Trading revenue  $3.45BN vs est. $3.12BN
  • FICC $1.30BN vs est. $1.01BN
  • Equities $2.15BN vs est. $2.11BN
  • I-banking $1.22BN vs est. $1.10BN

CEO James Gorman said that the bank’s results were a reflection of “solid performance in an improved but still fragile environment. In the midst of market uncertainty, we maintained our leadership positions across our core franchises and continued our focus on prudent risk management and judicious expense control.”

According to the FT, the drop in equities is likely to worry Mr Gorman, who last year reshuffled the bank’s trading businesses to promote equities veterans – including Ted Pick, head of global equities since 2011, who now runs global sales and trading for both equities and bonds. Six years ago Mr Gorman set out to cut the FIC unit down to size, in order to achieve a better balance between volatile income streams from trading and stickier, annuity-like revenues from wealth and asset management. That effort was a failure, he conceded in January, as he detailed more cuts to FIC and pushed back the bank’s main profitability target — a 9-11 per cent return on equity — to the end of 2017.

Over the past year the bank has cut about a quarter of the people dedicated to the bond-trading business around the world. It says it plans to reduce assets in its fixed-income and commodities business to $120bn or below by the end of next year, from $136bn at the end of last year.

As WSJ adds, Gorman has been working to boost profitability by trimming the capital committed to bond trading desks and boosting loans to investing clients of the firm’s large wealth management division. Earlier this year, the firm also disclosed its aim to cut $1 billion in expenses, a theme that has gained momentum at banks from Goldman Sachs Group Inc. to Bank of America Corp. this quarter.

Just like in the case of Goldman, Morgan Stanley slashed overhead and firmwide expenses fell 8.4% to $6.43 billion from $7.02 billion in the second quarter last year. Cost from employee pay and benefits fell 8.9% to $4.02 billion from $4.41 billion. Return on equity declined to 8.3% from 9.1% in the second quarter of 2015. Morgan Stanley executives have pledged to lift returns to 9%-11%.

Morgan Stanley shares have tumbled 11% this year as investors fretted over the firm’s ability to weather the slowdown. Other banks reported better-than-expected trading results in the second quarter, driven in part by a burst of client activity around the U.K. vote to leave the European Union in June.

It appears that Brexit was actually a boon to banks, not the bust it was widely predicted to be.

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TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Jul 20, 2016 7:04 AM

"A 9-11 percent return on equity in 2017"?


Is that a not so secret message being sent out? 

April_Love's picture
April_Love (not verified) TradingIsLifeBrah Jul 20, 2016 7:17 AM

My last pay check was 9500 bucks working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do...

CorporateCongress's picture

Fuck you, your sister and his friend.

O and fuck your dog too.



brexit's picture
brexit (not verified) Jul 20, 2016 7:07 AM



ss123's picture

I've noticed a pattern in earnings where a lot of reported revenues are down, even though the companies beat expectations.

And the market climbs higher...

DavidC's picture


Have the company tell you what it's DONE, not what it's going to do (or make it up), fudge the results using and emphasis on non-GAAP accounting (so what's the point of GAAP reporting then?), fiddle the EPS by buybacks, tax accounting gimmicks and with revenues DOWN (across the board if I've read the article above properly) - and now is the time to BUY stocks?!


PontifexMaximus's picture

did we really, really expect anything else than that? ALL results will be above expectations, hillary has to make it, so therefore...And who cares about results.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) PontifexMaximus Jul 20, 2016 7:19 AM

Put the bar under the ground so the companies can roll over it.

onewayticket2's picture

just wait til HRC drops the "free college" bomb.....the millenials will "orgasm for hillary"....and student loan forgiveness for those already out of college.  


(now you know why bernie was in the race from the setting the bar at $18,000,000,000,000.00 of new spending, bernie will make Hillary's $10T look like a fiscal conservative's plan)

yogibear's picture

What a hoot! Good for another few hundred points on the DOW. 

It's a stock buying frenzy I tell you!


Infield_Fly's picture
Infield_Fly (not verified) Jul 20, 2016 7:33 AM

CBs will be long MS this morning - using government debt to buy MOAR STAWKS!!!


BOJ, ECB, Fed, BOE, PBOC, SNB - all bullish.


Yesterday's SPY volume = 54M,  SPY Volume on day before thanksgiving (Nov25) = 52M (half day).


So the CBs are just trading volume amongst themselves now - plus the day's scalpers.


Nice fucking markets yellen, ya stank cunt!!!



Any added comments Tyler??

Claire Voyant's picture

The yellen brick road. Those in power will typically do anything to stay in power.

El Hosel's picture

Fittingly MS weekly chart shows death cross in progress at $28.85 ...  tip of the top to ya, how many shares will be "off loaded" on this fine day?

45 Million, plus or minus.

brada1013567's picture

Draghi's bond buying, Why do you think all these banks made out like bandits on Fixed Income trading.

Goldbugger's picture

FASB 157 It works good it hides all bad assests.

Contrariologist's picture
Contrariologist (not verified) Jul 20, 2016 1:23 PM

How does any of this matter? We have the same people who calculate the expected number, calculate the "beat", report the beat, then buy the beat. Lather, rinse, repeat. It's kind of like the US government reporting:

-we expect a deficit this year of $600 billion

-oh boy, the "actual" deficit was only $575 billion, so we had a "beat."

-Let's appropriate an extra $25 billion before the revisions come in!

Of course, every single reported number is pure bullshit, so what possible fucking difference does it make, whether on Wall Street or in Washington?