Morgan Stanley Shares Plunge on Earnings Woes, Bank Blames Bonds

morgan stanley
Morgan Stanley missed analyst earnings estimates by more than 10 percent. | Source: Shutterstock

Morgan Stanley’s fixed-income division posted its worst quarterly results in three years, sending the stock plummeting.

According to Bloomberg, the Wall Street firm recorded a drop of 30% in bond-trading revenue from $808 million a year ago to $564 million. This was well below the $823 million that analysts had been expecting. Morgan Stanley blamed this on “unfavorable marketing making conditions.”

morgan stanley stock share price
Morgan Stanley shares cratered after the bank published its quarterly earnings results.

Additionally, net revenues for the fourth quarter fell to $8.5 billion from $9.5 billion recorded in a similar quarter a year prior.

After the announcement, Morgan Stanley’s stock fell by over 5% to below $42. The stock has slightly recovered to above $43 thanks to a massive stock rally that saw the Dow rise 250 points.

Q4’s Worst Performer in Fixed Income Revenues

The drop in fixed income revenues was not restricted to Morgan Stanley but was replicated across other Wall Street firms. However, Morgan Stanley had the worst drop in fixed income revenue compared to Citi (-21%), JPMorgan Chase (-16%), and Bank of America Merrill Lynch (-15%).

But while Goldman Sachs recorded an 18% drop in fixed income revenues, it beat analysts’ estimates with regards to earnings per share. This sent the stock soaring at the time, as CCN reported.

Morgan Stanley also fared worse than rivals in equities trading and wealth management. Sales and trading net revenues fell from $2.7 billion a year ago to $2.5 billion. Pre-tax income in the wealth management division fell from $1.2 billion a year ago to $1 billion.

The chief executive of capital markets consultancy Opimas, Octavio Marenzi, stated that the performance wasn’t Morgan Stanley’s “finest hour” according to CNBC:

In wealth management, Morgan Stanley’s revenues were down 6%, while competing firms were able to eke out single-digit growth. In equities trading, Morgan Stanley was even further behind the competition, with flat revenues where other investment banks were able to benefit from market volatility and show double-digit growth.

Increased Mergers & Acquisitions Activity

On a positive note, a dealmaking boom saw advisory revenues rise from $522 million to $734 million. This beat the average estimate of approximately $605 million.

Net income also nearly doubled. This was largely because, in the same period a year ago, the firm had taken a charge following the tax legislation overhaul in the US:

For the current quarter, net income applicable to Morgan Stanley was $1.5 billion, or $0.80 per diluted share, compared with net income of $643 million, or $0.26 per diluted share, for the same period a year ago.

On average, analysts had been expecting a net income per share of $0.89 on revenues of approximately $9.24 billion. Shareholders will receive a quarterly dividend per share of 30 cents payable mid next month.

Featured Image from Shutterstock. Price Charts from TradingView.

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