Sales and trading
Morgan Stanley (MS) benefited from higher volatility and posted strong operating numbers. The bank’s Institutional Securities segment posted net income of $2.1 billion, compared with $1.7 billion in 1Q17. The segment’s top line rose to $6.1 billion from $5.2 billion in 1Q17, largely due to sales and trading amid higher market volatility.
Banks’ and brokers’ (XLF) equity trading has risen. Morgan Stanley’s equity trading grew 27% to $2.6 billion, and its fixed-income trading expanded 9% to $1.9 billion. As volatility has been lower in April, analysts expect banks’ trading income to decline sequentially. However, any major policy tweaks or geopolitical news could boost trading. Goldman Sachs (GS), Bank of America (BAC), and JPMorgan Chase (JPM) witnessed a healthy uptick in their trading performance across equities, derivatives, and commodities.
In 1Q18, Morgan Stanley’s Investment Banking business was boosted by advisory revenue and equity underwriting and partially offset by weaker debt underwriting. Its revenue rose 7% year-over-year to $1.5 billion.
As interest rates are projected to rise further in 2018, debt underwriting activity for a given set of credit rating profiles is expected to decline. Tax cuts have allowed corporates to generate higher operating flow and reduce their leverage further.
Morgan Stanley enhanced its spending for Institutional Securities, raising compensation to $2.2 billion from $1.9 billion. Non-compensation spending also rose, to $1.8 billion from $1.6 billion, mainly due to higher volumes.