Wealth Management Helped Morgan Stanley Beat 4Q17 Estimates



4Q17 performance

Morgan Stanley (MS) announced its 4Q17 earnings on January 18, 2018. Its adjusted EPS (earnings per share) were $0.84, and its revenue was $9.5 billion. In comparison, analysts had estimated EPS of $0.77 and revenue of $9.2 billion. These figures exclude one-off charges and other items. Compared to 4Q16, MS’s revenue rose 5.5%, and its EPS rose 3.7%.

Morgan Stanley’s compensation expenses were $4.3 billion, $0.2 billion higher than they were a year ago on account of higher revenue. Its noncompensation expenses were $2.8 billion, $0.1 billion higher than they were a year ago. The company’s expense efficiency ratio for 4Q17 stood at 74%.

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Stock performance and trading revenue

Morgan Stanley’s wealth management revenue rose $4.4 billion in the quarter, higher than the $4.3 billion expected by analysts. The company’s share price rose 2% before its earnings release on January 18.

President Donald Trump recently slashed US corporate taxes from 35% to 21%, and though this cut will be beneficial for MS in the long term, the company has taken a one-time charge for it. The company’s trading revenue from equities and fixed income and commodities and currency fell 5% and 46%, respectively.

Year-to-date performance

YTD (year-to-date), MS beat the S&P 500 Index (SPX) by a slight margin. SPX had a total YTD return of 4.9% on January 18. Morgan Stanley’s YTD return was 5.5%, JPMorgan Chase’s (JPM) YTD return was 6.2%, and Goldman Sachs’ (GS) YTD return was 0.5%.

MS forms 2.3% of the iShares U.S. Financial Services ETF (IYG). This fund includes banks, financial companies, and financial services companies. IYG’s YTD return was 5.7%.

Series overview

In this series, we’ll take a detailed look at the revenue of each of Morgan Stanley’s segments. We’ll also look at major policy changes such as the tax cut and how they might affect MS now and in future quarters. We’ll wrap the series up by looking at analysts’ recommendations for MS.


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