Equity trading revenue soars 45% to record levels.
Market volatility proved to be beneficial for Morgan Stanley (NYSE:MS) in the first quarter, as the financial services behemoth posted record revenue and strong earnings.
Morgan Stanley stock was up slightly on Friday, rising about 1%, as tariff uncertainty still clouds the overall market.
But it was an unusually strong quarter for Morgan Stanley as revenue jumped 17% year-over-year to a record $17.7 billion, which easily bested estimates of $16.6 billion.
Net income jumped 23% to $4.3 billion, while earnings were $2.60 per share, a 29% increase over the same quarter a year ago. This surpassed estimates of $220 per share.
Morgan Stanley got a huge lift from its institutional trading business, spurred on by the extreme volatility in the markets that led to more trading activity.
Equity trading revenue soared to a record $4.1 billion, up 45% year-over-year. Fixed income trading rose 5% year-over-year to $2.6 billion, while the “other” category rose 186% to $692 million.
The earnings report says the “other” category increase was driven by realized gains on the sale of corporate loans held-for-sale compared to mark-to-market losses, net of hedges, a year ago.
Several news outlets, including Bloomberg reported that the increase is related to Morgan Stanley offloading loans for X, Elon Musk’s social media platform, citing a person with knowledge of the matter.
M&A activity increases
Morgan Stanley also saw growth in its wealth management business, as revenue spiked 6% to $7.3 billion. Investment management revenue was also up, jumping 16% to $1.6 billion. Total assets under management increased 10% year-over-year to $1.65 trillion.
The company also saw robust investment banking revenue on a surge in completed M&A transactions. Overall, investment banking income climbed 6% to $1.6 billion, with advisory revenue soaring 22% to $563 million.
Revenue from fixed income underwriting also rose 22% to $677 million, while equity underwriting was down 26% to $319 million.
“The integrated firm delivered a very strong quarter with record net revenues of $17.7 billion and EPS of $2.60, and an ROTCE of 23.0%. Institutional Securities strong performance was led by our Markets business with Equity reporting a record $4.1 billion in revenues,” chairman and CEO Ted Pick said. “Total client assets of $7.7 trillion across Wealth and Investment Management were supported by $94 billion in net new assets. These results demonstrate the consistent execution of our clear strategy to drive durable growth across our global footprint.”
Is Morgan Stanley a buy?
Morgan Stanley stock is down about 14% YTD, which is more than the approximately 10% drop in the S&P 500.
But like some of the other big financial firms, including JPMorgan Chase, it is good financial shape with lots of liquidity, a high common equity tier 1 ratio, and diversity of revenue streams. It should also continue to benefit from the volatility, even more so if markets rise a bit from their depths in the second half.
Morgan Stanley stock is also cheap, trading at 13 times earnings. It has a median price target of $130, which suggests about 21% upside.
Selloffs like this are hard to endure, but they do present buying opportunities for good stable, blue chip companies like Morgan Stanley.
