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Morgan Stanley: Investor Highlights from Q3 Earnings


Oct. 21 2019, Updated 12:10 p.m. ET

A day after US Bancorp’s earnings release, Morgan Stanley (MS) released its third-quarter results on October 17. The stock reacted positively and opened at $44.39 on Thursday. Its actual earnings were much better than the forecast results. The bank’s Q3 2019 revenues were the highest third-quarter result posted by the bank in the last decade.

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Morgan Stanley: Revenue highlights

Morgan Stanley’s total net revenue for the third quarter increased to just above $10 billion, compared with revenues of $9.9 billion for Q3 2018. Of its total revenues, Morgan Stanley’s net income in the third quarter was $2.173 billion, up from $2.112 billion in the third quarter of 2018. Its return on equity is 11.2%, and its return on tangible common equity is 12.9%.

Morgan Stanley’s revenue segments are classified into three major categories—Institutional Securities, Wealth Management, and Investment Management. Let’s take a look.

Institutional Securities division

Morgan Stanley’s third-quarter revenues generated from its Institutional Securities division totaled $5.023 billion, up from $4.929 billion for Q3 2018. It reported pretax income of $1.3 billion for Q3 2019 compared to $1.6 billion for the same period in the previous year. Institutional Securities is further split into two segments—Investment Banking and Sales and Trading.

Investment Banking’s revenues increased due to the growing turnover from M&A advisory. Plus, the high volume of transactions during the quarter aided its revenue growth. Compared to the third quarter of 2018, this segment recorded higher bond issue underwriting revenues in Q3 2019.

However, there was a drop in this segment’s revenues from equity underwriting. The reduction in equity underwriting revenue was partially set off by a relative increase in convertible issuance.

Sales and Trading revenues for Morgan Stanley were unchanged for the third quarter compared with the third quarter of 2018. Sales and Trading’s revenues from fixed-income securities increased by 21% on an annual basis. However, there was a decrease in revenues from the derivatives asset class.

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Wealth Management division

In the third quarter, the Wealth Management division’s net revenues were marginally less than the revenues reported in the third quarter of 2018. For the third quarter, these revenues totaled $4.358 billion, and the pretax income was $1.2 billion. The Q3 pretax margin was 28.4%.

Turnover from the Asset Management division rose to $2.639 billion in the third quarter, compared to $2.573 billion in the third quarter of 2018. Its transactional revenues decreased due to investment losses with some employee deferred compensation plans. Overall, its net interest income decreased by 3% to $1.043 billion from $1.07 billion in Q3 2018.

Investment Management division

The Investment Management division’s net revenues reached $764 million, approximately $111 million higher than the previous year. In the third quarter of 2018, its net revenues were $653 million. Its pretax income increased to $165 million from $102 million in Q3 2018.

This division’s net revenue growth rose by 17% from Q3 2018. Revenues from the Asset Management division increased approximately 10% year-over-year in the third quarter.

Morgan Stanley’s balance sheet highlights

During the third quarter, Morgan Stanley repurchased $1.5 billion worth of shares. The investment also declared a dividend of $0.35 per share, which is payable on November 15. Shareholders of record on October 31 will be eligible for the dividend.

Morgan Stanley’s earnings per share have improved during the quarter. Its basic EPS for the third quarter totaled $1.28, and its diluted EPS totaled $1.27. Its basic EPS for Q2 2019 and Q3 2018 were $1.24 and $1.19, respectively. For the same period, its diluted earnings per share were $1.23 and $1.17, respectively.

Morgan Stanley’s return on equity was 11.2% for the third quarter, the same as in the second quarter. However, its ROE is lower than its Q3 2018 ROE of 11.5%. Plus, it reported a return on tangible common equity of 12.9% for Q3 2019, compared to 12.8% in Q2 2019 and 13.2% in Q3 2018.


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