Backed by record equity trading revenue, strong net new asset accumulation, and solid cost control, Morgan Stanley (MS, Financial) exceeded Q1 2025 EPS and revenue estimates. The company showcased its resilience and the benefits of its diversified revenue streams. However, the equity underwriting business experienced a slowdown in IPO activity towards the quarter's end. While MS did not provide formal guidance for FY25, it cautioned that trade tensions and weak IPO debuts could negatively impact IPO and advisory pipelines. Additionally, tariff-induced inflationary pressures might result in steeper yield curves, increasing borrowing costs and fiscal strains.
- Equity trading revenue surged 45% year-over-year to a record $4.13 billion, driven by heightened volatility from President Trump's tariffs and China's GenAI model, DeepSeek.
- The Institutional Securities segment, about 40% of total revenue, saw Advisory revenue increase by 22.1% to $563 million, benefiting from a resurgence in M&A activity in the technology and industrial sectors.
- Equity underwriting revenue fell nearly 26% to $319 million, following a 102% growth in the previous quarter, due to a slowdown in IPO activity.
- The Wealth Management segment, approximately 35% of total revenue, generated net new assets of $94.0 billion, increasing total client assets by 10% year-over-year to $7.7 trillion, with a target of reaching $10.0 trillion.
- MS improved its expense efficiency ratio to 68%, compared to 69% last quarter and 71% in the prior year, with compensation expenses rising by only 12.3%.
Morgan Stanley reported strong Q1 results, fueled by exceptional equity trading, robust Wealth Management flows, and a rebound in advisory revenue. Despite its diversified revenue streams providing a buffer during economic uncertainty, the company still faces risks from global trade war repercussions, affecting dealmaking activities.
