Morgan Stanley Earnings Top Forecasts

Morgan Stanley
Morgan Stanley

Morgan Stanley's (MS) second-quarter earnings easily topped Wall Street estimates as the investment bank swung to a profit from a year-ago loss on sharply higher revenue.

For the three months ended June 30, Morgan Stanley reported net income of $1.6 billion, or $1.20 a share, versus a loss of $1.3 billion, or $1.10, in last year's second quarter. Excluding results from the since-shuttered Morgan Stanley Smith Barney brokerage business, earnings from continuation operations came to 80 cents a share, which also included a tax benefit of 20 cents. Revenue for the quarter jumped to $8 billion from $5.2 billion a year ago.

Analysts, on average, forecast Morgan Stanley to report earnings of 46 cents a share on revenue of $7.93 billion, according to data from Thomson Reuters.

Managing to Eke Out Profits

"While markets were challenging this quarter, Morgan Stanley benefited from a deliberate and disciplined focus on execution," CEO James Gorman said in a statement. "We strengthened leading market positions in our client-focused Investment Banking business, improved client flows in Sales and Trading, and continued progress on the integration of Morgan Stanley Smith Barney as well as the repositioning of our Asset Management business."

Thanks to lower losses on loans and credit cards, America's big money-center banks are managing to eke out profits and beat analysts' earnings expectations, despite a sharp falloff in trading income due to the stock market correction. But as an investment bank, Morgan Stanley, like rival Goldman Sachs (GS), is especially sensitive to ebbs and flows in the capital markets.

Goldman Sachs said Tuesday that second-quarter revenue dropped more than 35% to $8.84 billion, short of analysts' average forecast of $8.94 billion. Revenue from trading and investments tumbled nearly 40% versus last year's second quarter, while investment banking revenue declined more than 35%.

Shares in Morgan Stanley jumped about 3% in Wednesday premarket trading. For the year to date, the stock is off about 15%, underperforming the broader market by 10 percentage points (see chart below).

UPDATE: Morgan Stanley shares are up over 9% in mid-morning trading.