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     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3935 Registered: 05-2011 Posted From: 24.164.46.35 Rating: N/A |
Morgan Stanley's more diversified business model produces better-than-feared Q4 results (95.44 +1.43) In the aftermath of disappointing earnings reports from Goldman Sachs (GS), JPMorgan Chase (JPM), and Citigroup (C), expectations had been reset lower ahead of Morgan Stanley's (MS) 4Q21 results. It was clear that a steep decline in trading activity, especially on the fixed income side, would heavily weigh on this quarter. As widely anticipated, that scenario unfolded and created a potent headwind, but MS still managed to edge past the EPS consensus estimate while its revenue came up just shy of analysts' expectations. Relative to most of MS's banking peers, its Q4 results look a little more balanced. Areas of weakness are evident -- including the 31% plunge in fixed income trading revenue -- and MS's mixed headline numbers represent a major step back from recent performances. However, there are also several key positives from the report that illuminate MS's outperformance during the quarter, such as: With the more volatile trading business cooling off in Q4, MS's strategy to become a leader in three distinct financial markets (institutional securities, investment management, wealth management) worked in its favor. At the core of this strategy is the company's recent acquisitions of E*TRADE (completed Oct. 2, 2020) and Eaton Vance (completed March 1, 2021), which diversified its customer base and added a consistent fee-generating business. In the Wealth Management segment, which houses E*TRADE, net revenue grew by a healthy 10% yr/yr to $6.25 bln. This is the first time that MS lapped a quarter in which E*TRADE was included in its results. Results in the Investment Management segment are still impacted by the Eaton Vance acquisition, explaining how net revenue surged by 59% yr/yr to $1.75 bln. Higher performance fees also contributed to the strong growth. The jump in compensation expense has been another main storyline for the banking industry this earnings season. For instance, GS's and JPM's compensation expenses climbed by 31% and 14%, respectively. MS kept a much tighter lid on these costs, though, as its compensation expense was up just 1% yr/yr. That allowed MS to generate yr/yr EPS growth of 11% while GS's EPS fell by 11%. Equity trading was a relative bright spot; net revenue increased by 13% to $2.86 bln. Although the growth wasn't enough to offset weakness in fixed income trading, which drove total trading revenue lower by 26%, MS outperformed GS in this space. Like GS and JPM, MS also capitalized on the robust M&A market: advisory revenue rose by 30% to $1.07 bln. The strength in advisory eclipsed a slowdown in equity underwriting (-15% yr/yr) as secondary offerings and IPO activity decelerated. Overall, MS's investment banking revenue increased by 6% from a year ago. Heading into MS's report, most of the bad news was already priced into the stock. With expectations suppressed, the company's modest earnings beat is viewed as "better-than-feared". MS, in addition to hurdling over a lowered bar, also stood out through its more balanced performance, driven by its diversified business model. |