On Wednesday, Morgan Stanley reported better-than-expected trading results for the first quarter. Earnings for the New York-based bank fell 19% to $2.98 billion, or $1.70 per share, from a year earlier due to declines in investment banking and trading. Company-wide revenue slipped 2% to $14.52 billion. As revenues declined, expenses at the bank increased by 4% to $10.52 billion, primarily due to higher-than-expected compensation costs. Expenses were $430 million higher than the StreetAccount estimate. In a research note, analyst Mike Mayo of Wells Fargo said that higher costs helped hurt profit margins at the bank’s wealth division and investment bank. Also, he stated that the bank would have earned $1.64 per share without the benefit of a low tax rate. Morgan Stanley shares rose less than 1% in midday trading after falling as much as 4% in premarket action.
Morgan Stanley has grown into a wealth management giant under the leadership of CEO James Gorman. The Bank’s major revenue source is wealth and investment management, a steadier business that helps to offset the volatility of its trading and banking operations. “The investments we have made in our wealth management business continue to bear fruit as we added a robust $110 billion in net new assets this quarter,” Gorman said in an earnings release. “Equity and fixed Income revenues were strong, although investment banking activity continued to be constrained.” Revenue for wealth management increased 11% from the year-earlier period to $6.56 billion, in line with StreetAccount’s estimates. The increase was attributed to increased net interest income, offset by lower asset management revenues as markets declined. The first-quarter trading revenue of Morgan Stanley decreased from a year ago as Wall Street came down from a Covid pandemic-era boom, but the traders were able to surpass expectations by approximately $250 million. The bank’s fixed-income traders generated $2.58 billion in revenue, exceeding StreetAccount’s estimate of $2.33 billion. Equities trading revenue of $2.73 billion edged out the $2.65 billion estimate. Investment banking revenue dropped 24% to $1.25 billion on fewer completed M&A deals and lower stock and debt issuance, edging out the $1.2 billion estimate. Finally, investment management, the bank’s smallest business, saw revenue decline 3% to $1.29 billion, just below the $1.34 billion estimate, as management fees fell.