America’s multinational financial services corporation Morgan Stanley (MS, Financial) has gained highest profits in the first quarter since the great financial crisis. This was due to higher revenues from trading bonds and equities. Globally too, the first quarter has been good for many as central bank eased out monetary policy.
The profits so far
Overall, the year began well for the banking sector with several of them reporting higher gains crediting the same to the eased monetary policy by central banks.
This was a better than expected quarterly profit for the New York based Morgan Stanley. The net income applicable to common shareholders was $1.45 billion or $0.74 per share last year which rose to $2.31 billion or $1.18 per share respectively this quarter. The bank earned $1.14 per share excluding items. Net revenues also showed better than expected figure of $9.78 billion which was an increase of 10.3%. The adjusted earnings as per the calculations of Reuters were $0.85 per share exceeding the forecasted $0.78 per share by the analysts. The increase in the adjusted revenues was majorly from the equities sales and trading which rose by 33% to $2.27 billion although it was not on top. The top place was taken by its competitor Goldman Sachs, (GS, Financial) which reported quarterly revenues of $2.32 billion. If we look at the bank’s wealth management business, there was a surge of 6.2% seen in the revenues equating to $3.83 billion which also contributed to 39% of the total revenues of the bank. The bank has over $2 Trillion in assets under management which makes it inevitable to focus more on stable businesses like asset management rather than trading. The asset management unit of the bank managed a pre-tax margin of 20% in 2014 which is expected to hit the range of 22% to 25% by end of this year. The figure looks achievable as the first quarter posted a margin of 22% already.
Looking at the revenues from trading fixed-income securities currencies and commodities (FICC), there was a rise of 15% equating to $1.90 billion excluding special items. Looking at last 9 years’ figures, while the wealth unit’s contribution increased to 45% last year than in 2006, FICC revenues fell badly to more than one third to stand at 12%. However, the bank has been able to catch up in its FICC business after the Swiss bank’s announcement of scrapping a cap on the Franc and European central bank’s announcement of quantitative easing program. Tightening of monetary policy by US Federal Reserve also helped in gaining back on the FICC unit of the bank.
One area where Morgan Stanley is still lacking behind is the investment banking unit where declines have been recorded in debt and equity underwriting revenues due to falling loan volumes and a slow quarter for IPOs. Though the bank’s M&A advisory revenues rose over 40% to $471 million boosted by strong corporate mergers and acquisitions recently, the investment banking unit’s revenue was recorded at a lower side at $1.17 billion.
The current quarter was Morgan Stanley’s most profitable quarter since after the second quarter of 2007 which has put the bank in the front runners along with competitors like Goldman Sachs and JPMorgan Chase (JPM, Financial).
Morgan Stanley’s future outlook
Overall, Morgan Stanley caught up in the market with 60% rise in net profit and becoming a topper. Going forward, the bank hopes to continue with the good earnings by focusing less on bond markets and more on managing money for the rich using it as a means to free up capital and also to match with the regulatory rules to be followed post the financial crisis. The bank is increasing its quarterly dividend by 50% to $0.15 per share led by strong earnings and higher capital levels in this quarter and also planning to announce a $3.1 Billion share repurchase authorization to begin this quarter until mid-2016.
Shares of Morgan Stanley rose 0.6% to close at $36.96 per share while total gains have been recorded to be approximately around 20% in the last one year.
