What to Expect from Morgan Stanley in the Second Quarter

Sales and trading

Morgan Stanley (MS) is expected to post an EPS of $1.11 in the second quarter—an implied growth of 27.6% on a YoY (year-over-year) basis due to higher trading, asset management, and lower taxes. On a sequential basis, Morgan Stanley is expected to see a 23.0% decline in its earnings mainly due to a decline in volatility from highs in the first quarter. The earnings decline is partially offset by a rebound in holdings’ valuations and the expectation of higher performance fees. Morgan Stanley could see increased trading in equities, currencies, and alternatives on a YoY basis.

What to Expect from Morgan Stanley in the Second Quarter

Goldman Sachs (GS) and Morgan Stanley posted record first-quarter earnings due to higher trading revenues. They’re focusing on structured debt underwriting to boost their advisory fees. The Fed’s hawkish monetary policy, trade wars, and the Trump Administration’s focus on manufacturing are causing investments to shift towards structured debt and alternatives.

Stress tests

Goldman Sachs and Morgan Stanley cleared stress tests, alongside 31 banks out of the 34 banks, with the condition of not increasing shareholder payouts. The restriction on payouts is largely due to capital adequacy requirements demanded by the committee. Morgan Stanley stock fell 3.7% in the past month—compared to a 1.4% decline for the overall sector (XLF). Morgan Stanley paid a dividend per share of $0.25 and spent $1.3 billion on share repurchases in the first quarter.

JPMorgan Chase (JPM) and Bank of America (BAC) are targeting higher payouts after clearing the stress tests in order to boost their return on equity. Morgan Stanley’s institutional securities grew 18%, while wealth management grew 8% on a YoY basis in the first quarter.

The bank’s interest income is expected to grow due to higher rate spreads. However, lending could decline on a sequential basis in the second quarter. For fiscal 2018, Morgan Stanley is expected to post an EPS of $4.69 with an implied growth of 30% due to trading, new assets, and tax benefits.