Morgan Stanley Q3 earnings beats, bolstered by investment banking revival

Morgan Stanley (NYSE:MS) stock climbed 2.8% in Wednesday premarket trading after the Wall Street bank’s Q3 earnings soared past the consensus estimate as markets and underwriting businesses drove a surge in investment banking revenue.

Q3 GAAP EPS of $1.88, beating the $1.58 consensus, grew from $1.82 in Q2 and $1.38 in last year’s Q3.

Net revenue of $15.4B, smashing the average analyst estimate of $14.3B, climbed from $15.0B in the prior quarter and $13.3B a year ago.

“Institutional Securities saw momentum in the markets and underwriting businesses on solid client engagement,” said CEO Ted Pick. “Total client assets have surpassed $7.5T across Wealth and Investment Management supported by buoyant equity markets and net asset inflows.”

Morgan Stanley’s (MS) Q3 net interest income of $2.20B, exceeding the Visible Alpha consensus of $1.94B, climbed from $2.07B in the previous quarter and $1.98B in the year-ago period.

Pretax profit margin of 27% was unchanged from the previous quarter and rose from 24% a year ago. Compensation and benefits, as a percentage of net revenue, was 44% vs. 43% in Q2 and 45% in last year’s Q3.

Total non-compensation expenses were $4.35B vs. $4.41B in Q2 and $4.06B in Q3 2023.

Provision for credit losses of $79M (vs. $64M Visible Alpha consensus) compared with $76M in Q2 and $134M in Q3 2023.

Return on average tangible common equity of 17.5% was unchanged from Q2 and increased from 13.5% in last year’s Q3.

Revenue by segment:

• Institutional Securities: $6.82B fell 2% Q/Q and rose 20% Y/Y; investment banking revenue surged 56% Y/Y, fueled by modestly higher M&A deals, increased equity underwriting from higher IPOs, follow-ons, and blocks and significantly higher fixed income underwriting. Equity net revenue grew 21% Y/Y; and fixed income revenue rose 3% Y/Y.
• Wealth Management: $7.27B climbed 7% Q/Q and 14% Y/Y. Total client assets reached $6T, rising 5% Q/Q and 25% Y/Y; net new assets of $63.9B surged 76% Q/Q and 79% Y/Y.
• Investment Management: $1.46B increased 5% Q/Q and 9% Y/Y. Asset management and related fees increased from a year ago on higher average AUM driven by higher market levels. Performance-based income and other revenue rose Y/Y on mark-to-market gains on investments associated with DCP vs. losses in the prior year.

Conference call at 8:30 AM ET.

Earlier, Morgan Stanley GAAP EPS of $1.88 beats by $0.30, revenue of $15.38B beats by $1.09B