Morgan Stanley (MS)’s 2Q Results Boosted by Trading and Brokerage Fees
Morgan Stanley (NYSE:MS) reported second quarter results that benefited from trading, as well as, the brokerage fees. As a result, the company could witness the largest increase in revenue among the six biggest banks in the United States. Its results came on the heels of other financial service providers reporting their June quarter numbers last week. The company’s results were also not impacted by any charges.
Revenue Growth
Adjusted revenue of Morgan Stanley (NYSE:MS) witnessed 12% growth to $9.56 billion in the second quarter. The percentage of growth was the biggest among the financial companies that announced their results so far. Its net income slipped 4.8% to $1.81 billion or 85 cents per share from $1.9 billion or 92 cents a share in the prior year quarter. On an adjusted basis, earnings would have been 79 cents a share thus beating the consensus of 23 analysts’ estimation of 74 cents a share.
The diversified financial service provider was also the only firm to report growth in bond trading apart from generating record profit from its wealth-management division. That was the fourth time in the last five quarters. Ultimately, the growth in the brokerage enabled the company to avoid join other banks in reporting in a drop in revenue for the June quarter.
Analyst Comments
UBS Securities analyst, Brennan Hawken, told Bloomberg that fixed-income trading was the best in Morgan Stanley (NYSE:MS). He also said the results should remove any concern about the company’s ability to sustain it. Till now, the company has succeeded in executing their plans. The financial service provider’s investment-banking, as well as, the trading division recorded 22% YOY growth in revenue to $5.17 billion.
The company’s book value per share grew to $34.52 from $33.80 in the March quarter, while return on equity was 9.1% for the June quarter. Morgan Stanley (NYSE:MS) expects tax rate of 32% in the second half of the current year while it was 33% in the second quarter. Still, it was higher than the earlier expectation of 30%.
Morgan Stanley, incorporated on January 10, 1981, is a financial holding company. Through its subsidiaries and affiliates, the Company provides a variety of products and financial services to a group of clients and customers, including corporations, governments, financial institutions and individuals. The Company’s operating segments include Institutional Securities, Wealth Management and Investment Management.
Institutional Securities
The Company’s Institutional Securities business segment provides financial advisory and capital-raising services to a group of corporate and other institutional clients, through wholly owned subsidiaries, which include Morgan Stanley & Co. LLC (MS&Co.) and Morgan Stanley & Co. International plc (MSIP), and certain joint venture entities, such as Morgan Stanley MUFG Securities Co., Ltd. (MSMS) and Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS). The Company, through these entities, also conducts sales and trading activities across the world and provides related financing services on behalf of institutional investors. The Company manages and participates in public offerings and private placements of debt, equity and other securities. The Company is an underwriter of common stock, preferred stock and other equity-related securities, including convertible securities and American Depositary Receipts (ADRs). It is also an underwriter of fixed income securities, including investment grade debt, non-investment grade instruments, mortgage-related and other asset-backed securities, tax-exempt securities and commercial paper and other short-term securities.
The Company provides corporate and other institutional clients globally with advisory services on strategic matters, such as mergers and acquisitions, divestitures, joint ventures, corporate restructurings, recapitalizations, spin-offs, exchange offers and leveraged buyouts and takeover defenses, as well as shareholder relations. It also provides advice and services concerning rights offerings, dividend policy, valuations, foreign exchange exposure, financial risk management strategies and financial planning. In addition, the Company furnishes advice and services regarding project financings and provides advisory services in connection with the purchase, sale, leasing and financing of real estate. The Company provides loans or lending commitments, including bridge financing, to select corporate clients through its subsidiaries, including Morgan Stanley Bank, N.A. (MSBNA).
The Company conducts sales, trading, financing and market-making activities on securities, swaps and futures, both on exchanges and in over-the-counter (OTC) markets across the world. The Company’s Institutional Securities sales and trading activities comprise institutional equity; fixed income and commodities; research, and investments. The Company acts as agent and principal and as a market-maker, in executing transactions globally in cash equity and equity-related products, including common stock, ADRs, global depositary receipts and exchange-traded funds. It acts as agent and principal in executing transactions in equity derivatives and equity-linked or related products, including options, equity swaps, warrants, structured notes and futures on individual securities, indices and baskets of securities and other equity-related products. The Company offers prime brokerage services to clients, including consolidated clearance, settlement, custody, financing and portfolio reporting. In addition, the Company provides wealth management services to ultra-high net worth and high net worth clients in select regions outside the United States.
The Company trades, invests and makes markets in fixed income securities and related products globally, including, among other products, investment and non-investment grade corporate debt; distressed debt; bank loans; United States and other sovereign securities; emerging market bonds and loans; convertible bonds; collateralized debt obligations; credit, currency, interest rate and other fixed income-linked notes; securities issued by structured investment vehicles; mortgage-related and other asset-backed securities and real estate-loan products; municipal securities; preferred stock and commercial paper, and money-market and other short-term securities. The Company is a primary dealer of United States federal Government securities and a member of the selling groups that distribute various United States agency and other debt securities. The Company is also a dealer or market-maker of government securities in numerous European, Asian and emerging market countries, as well as Canada. The Company trades, invests and makes markets in listed swaps and futures and OTC cleared and uncleared swaps, forwards, options and other derivatives referencing, among other things, interest rates, currencies, investment grade and non-investment grade corporate credits, loans, bonds, United States and other sovereign securities, emerging market bonds and loans, credit indexes, asset-backed security indexes, property indexes, mortgage-related and other asset-backed securities and real estate loan products. The Company acts as an intermediary between borrowers and lenders of short-term funds and provides funding for various inventory positions. It also provides financing to customers for commercial and residential real estate loan products and other securitizable asset classes, and distributes such securitized assets to investors. In addition, the Company engages in principal securities lending with clients, institutional lenders and other broker-dealers.
The Company advises on investment and liability strategies and assists corporations in their debt repurchases and planning. It structures debt securities, derivatives and other instruments with risk/return factors designed to suit client objectives, including using repackaged asset and other structured vehicles, through which clients can restructure asset portfolios to provide liquidity or reconfigure risk profiles. The Company trades, invests and makes markets in the spot, forward, OTC cleared and uncleared swaps, options and futures markets in several commodities, including metals (base and precious), agricultural products, crude oil, oil products, natural gas, electric power, emission credits, coal, freight, liquefied natural gas and related products and indices. The Company offers counterparties hedging programs relating to production, consumption, reserve/inventory management and structured transactions, including energy-contract securitizations and monetization. The Company is an electricity power marketer in the United States and owns electricity-generating facilities in the United States. The Company owns a minority interest in Heidmar Holdings LLC, which owns a group of companies that provide international marine transportation and United States marine logistics services.
The Company’s research department (Research) coordinates across all of the Company’s businesses and consists of economists, strategists and industry analysts who engage in equity and fixed income research activities and produce reports and studies on the United States and economy, financial markets, portfolio strategy, technical market analyses, individual companies and industry developments. Research examines trends covering numerous industries and individual companies, which are located outside the United States; provides analysis and forecasts relating to economic and monetary developments that affect matters, such as interest rates, foreign currencies, securities, derivatives and economic trends, and provides analytical support and publishes reports on asset-backed securities and the markets, in which such securities are traded; and data are disseminated to investors through third-party distributors, Internet sites, such as Client Linksm and Matrixsm, and the Company’s representatives. The Company from time to time makes investments that represent business facilitation or other investing activities.
The Company’s Operations and Information Technology departments provide the process and technology platform required to support Institutional Securities sales and trading activity, including post-execution trade processing and related internal controls over activity from trade entry through settlement and custody, such as asset servicing. This support is provided for listed and OTC transactions in commodities, equity and fixed income securities, including both primary and secondary trading, as well as listed, OTC and structured derivatives in markets around the world. These activities are undertaken through the Company’s own facilities, through membership in various clearing and settlement organizations, and through agreements with unaffiliated third parties.
Wealth Management
The Company’s Wealth Management business segment provides financial services to clients through a network of 16,076 global representatives in 622 locations. Wealth Management professionals serve individual investors and small-to-medium sized businesses and institutions, as well as ultra-high net worth, high net worth and affluent investors. Wealth Management representatives provide solutions designed to accommodate the individual investment objectives, risk tolerance and liquidity needs of investors residing in and outside the United States, call centers are available to meet the needs of clients. Wealth Management provides clients with an array of financial solutions, including products and services from the Company and third-party providers, such as other financial institutions, insurance companies and mutual fund families. Wealth Management provides brokerage and investment advisory services covering various types of investments, including equities, options, futures, foreign currencies, precious metals, fixed income securities, mutual funds, structured products, alternative investments, unit investment trusts, managed futures, separately managed accounts and mutual fund asset allocation programs. Wealth Management also engages in fixed income principal trading, which primarily facilitates clients’ trading or investments in such securities. In addition, Wealth Management offers education savings programs, financial and wealth planning services, and annuity and other insurance products.
Wealth Management also offers its clients access to several cash management services through various banks and other third parties, including deposits, debit cards, electronic bill payments and check writing, as well as lending products through affiliates, such as MSBNA and Morgan Stanley Private Bank, National Association (MSPBNA), including securities-based lending, mortgage loans and home equity lines of credit. Wealth Management offers access to trust and fiduciary services; offers access to cash management and commercial credit solutions to qualified small-and medium-sized businesses in the United States, and provides individual and corporate retirement solutions, including individual retirement accounts and 401(k) plans and United States and global stock plan services to corporate executives and businesses. Wealth Management provides clients a variety of ways to establish a relationship and conduct business, including brokerage accounts with transaction-based pricing and investment advisory accounts with asset-based fee pricing. The Company’s Operations and Information Technology departments provide the process and technology platform to support the Wealth Management business segment, including securities processing, capital markets operations, product services, and alternative investments, margin, payments and related internal controls over activity from trade entry through settlement and custody.
Investment Management
The Company’s Investment Management business segment consists of Traditional Asset Management, Alternative Investments, Merchant Banking and Real Estate Investing activities and offers clients an array of equity, fixed income, alternative investments, real estate and merchant banking strategies. The Company provides investment management strategies and products to institutional investors across the world, including corporations, pension plans, endowments, foundations, sovereign wealth funds, insurance companies and banks through a range of pooled vehicles and separate accounts. Additionally, the Company provides sub-advisory services to various unaffiliated financial institutions and intermediaries. The Company also offers open-end and alternative investment funds and separately managed accounts to individual investors through affiliated and unaffiliated broker-dealers, banks, insurance companies, financial planners and other intermediaries. Closed-end funds managed by the Company are available to individual investors through affiliated and unaffiliated broker-dealers. The Company also distributes mutual funds through numerous retirement plan platforms.
The Company offers a range of alternative investment, real estate investing and merchant banking products for institutional investors and high net worth individuals. The Company’s alternative investments product mix includes funds of hedge funds, funds of private equity and real estate funds, portable alpha strategies and managed futures. It also holds minority stakes in Lansdowne Partners and Avenue Capital Group. The Company’s real estate and merchant banking businesses include its real estate investing business, private equity funds, credit investing group and infrastructure investing group. The Company acts as general partner of and investment adviser to, its alternative investment, real estate and merchant banking funds. The Company’s Operations and Information Technology departments provide the process and technology platform required to support its Investment Management business segment, including transfer agency, mutual fund accounting and administration, transaction processing and certain fiduciary services on behalf of institutional, intermediary and high net worth clients.
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