Morgan Stanley (MS) reported its second-quarter earnings on Thursday. The bank beat analysts’ consensus EPS estimates for the quarter. The bank’s second-quarter adjusted EPS was $1.23 compared to estimates of $1.14. While Morgan Stanley’s institutional securities business reported a YoY (year-over-year) drop in revenues, its wealth management and investment management businesses reported higher revenues for the quarter. However, the company’s EPS fell YoY. The lower earnings likely pulled the stock down roughly 1.0% in pre-market trading on Thursday. In comparison, Morgan Stanley’s earnings fell in the first quarter as well.

Morgan Stanley’s Q2 Earnings Beat the Estimates

In the second quarter, Morgan Stanley’s net revenues were $10.2 billion. The bank’s revenues beat $10 billion in four of the last six quarters. The above graph shows Morgan Stanley’s EPS and estimates for the last nine quarters.

Morgan Stanley’s earnings drivers

Morgan Stanley’s Institutional Securities segment’s revenues fell from $5.7 billion in the second quarter of 2018 to $5.1 billion in the latest quarter. The segment’s investment banking revenues fell 13% from the previous year. Advisory and fixed income underwriting revenues fell due to lower market volumes. In contrast, strong IPOs and follow-on offerings resulted in flat equity underwriting revenues.

The Institutional Securities segment’s sales and trading revenues fell 12% YoY. Equity sales and trading revenues fell 14% YoY due to lower revenues in the financing business. A decline in interest rates, lower volatility, and fewer structured transactions impacted the fixed income sales and trading revenues.

Morgan Stanley’s Wealth Management segment reported a 2% YoY rise in its revenues. The segment’s earnings benefited from lower non-compensation costs. The segment’s net interest income fell 3% due to higher fund costs. However, the company’s Investment Management segment’s revenues rose 21% YoY due to higher investment gains.

Returns on equity

Morgan Stanley’s ROE (return on average common equity) for the first half of 2019 is 12.1%. The company’s ROTCE (return on average tangible common equity) was 13.8% during the same period. Although the ROE and ROTCE for the quarter were lower than the same quarter last year, the two metrics were in-line with Morgan Stanley’s target ranges.

To learn how Bank of America fared in the second quarter, read Bank of America Posts Mixed Q2 Results Amid Rate Cut Concerns.

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