A Morgan Stanley logo hangs outside their headquarters in New York, Wednesday, March 22, 2006. Photographer: Patrick Andrade/Bloomberg News.


Morgan Stanley (NYSE: MS) will report its Q2 2019 earnings on Wednesday, 18th July. Consensus figures points to a 6% decline in revenues year-on-year to $9.99 billion, and a 12% drop in EPS figure to $1.14. Per Trefis, Morgan Stanley’ stock has a fair value of $53, which is 20% higher than the current market price. We have analyzed Morgan Stanley’s earnings over the last five quarters in an interactive dashboard along with our expectations for full-year 2019. You can modify Trefis forecasts to see the impact of changes on Morgan Stanley’s valuation. Additionally, you can see more Trefis data for financial services companies here.

A Quick Look At Morgan Stanley’s Revenue Sources

Morgan Stanley reported $40.1 billion in Total Revenues in FY 2018. This included 3 revenue streams.

  • Institutional Securities: $20.1 billion in FY 2018 (50% of Total Revenues) – It consists of five sub-divisions:
    • Equity Trading – makes market in and trades equities and equity-related products, structures & derivatives
    • FICC Trading – makes markets in and trades interest rate products, mortgage-related securities, loan products, currencies, commodities etc.
    • Equity Underwriting & Debt Origination – offers equity & debt underwriting services, which includes public offerings and private placements.
    • M&A Advisory – provides advisory services in Mergers & Acquisitions (M&A) and financial restructuring
    • Principal Investments & Other – includes returns and overrides on corporate & real estate investments made by bank-managed merchant banking funds
  • Wealth Management: $17.2 billion in FY 2018 (43% of Total Revenues) – It provides financial services (like brokerage, investment advisory, financial planning, insurance, securities-based loans etc.) to wealthy individuals as well as small- to medium-sized businesses and institutions.
  • Investment Management: $2.8 billion in FY 2018 (7% of Total Revenues) – This division provides retail investors with a full range of mutual fund and alternative investment products, and institutional clients with a fully-integrated asset management offering.

How Have Morgan Stanley’s Revenues & Expenses Changed Over Recent Quarters?

  • In Q1 2019, Morgan Stanley reported Total Revenues of $10.3 billion, which is 7% less than the previous year.
  • The decrease was primarily driven by a 15% y-o-y drop in Institutional Securities Revenues, partially offset by a 12% jump in Investment Management revenues.
  • Notably, wealth management revenues of $4.4 billion have remained unchanged on a year-on year basis.
  • Although Morgan Stanley has increased its investment in information and communication processing by 11%, total operating expenses were down 4% y-o-y mainly driven by a lower compensation cost.

Morgan Stanley’s Key Revenue & Expense Drivers

Loans to Wealth Management Clients: In Q1 2019, Net Interest Income for Wealth Management increased by 12% y-o-y driven by a 6% growth in average loans to wealth management clients, which have seen steady growth over recent quarters. We expect the trend to continue over subsequent quarters – boosting the average wealth management loan portfolio by 5% over 2019.

Sales & Trading Revenues: Trading revenues have been under pressure over the last few quarters. In Q1 2019, it decreased by 15% y-o-y due to 21% drop in equity trading revenues. Although equity valuations have recovered from the slump witnessed in 2018, industry-wide headwinds due to negative trading environment and lower client activity levels very likely depressed equity trading revenues for Q2 2019. Unlike other major U.S. investment banks, Morgan Stanley focuses is securities trading efforts primarily on equity trading (and has a much smaller debt trading desk). This will only exaggerate the impact of weak equity trading revenues on the top line.However, we expect market conditions to improve over the second half of the year – resulting in sales & trading revenues shrinking only 3% y-o-y over 2019.

Investment Banking Revenues: In Q1 2019, Morgan Stanley reported Investment Banking revenues of $1.2 billion which is 24% lower to the figure a year ago. M&A Advisory fees dropped 29% y-o-while Debt Underwriting fees slumped 22%. The main reason for this decrease was lower M&A fee realization and fewer IPO & FPO deals. The second quarter remained an overall lukewarm period for capital markets globally, but we expect things to improve over subsequent quarters.

Morgan Stanley’s Outlook For Full Year 2019

  • Morgan Stanley is expected to report $39.75 billion in Total Revenues for 2019, which is slightly below the figure for 2018.
  • Institutional Securities revenues are expected to decrease 4% due to a decline in Equity Underwriting, Debt Origination, and Equity Trading revenues. However, expected growth of 2% in Wealth Management revenues should help.
  • Although Investment Management is expected to grow 4% over the year driven by an 8% increase in Assets under Management, its overall impact on Morgan Stanley’s Total Revenues is not significant.
  • Total Expenses would marginally decrease to $50.3 billion due to lower expected compensation costs. But with revenues shrinking more than expenses, Net Income will decrease roughly 2% in 2019 compared to 2018.
  • Morgan Stanley is expected to have repurchased shares worth $1.2 billion in second quarter. With share buybacks to continue over the rest of the year, the EPS figure should reach $4.92 for FY 2019.
  • EPS of $4.92 coupled with our forward P/E multiple of 10.8x represents price estimate of $53 for Morgan Stanley – representing a potential upside of 20% for the bank’s stock.

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