Morgan Stanley shares burst on Thursday after the company exceeded analysts' earnings estimates and each of its three main businesses generated more sales than expected.
The bank announced that fourth-quarter earnings increased 46% to $ 2.24 billion, or $ 1.30 per share, compared to the 99 percent estimate by Refinitiv. Revenue increased 27% to $ 10.86 billion, exceeding the $ 9.72 billion estimate by more than $ 1 billion.
The company's shares rose 8% in midday trading and climbed higher after the bank announced new, more ambitious financial targets.
"We have had strong quarterly results across all of our businesses," said CEO James Gorman in the press release. "Group-wide sales were over $ 10 billion for the fourth consecutive quarter. This led to record sales and record earnings for the full year. This consistent performance met all of our stated performance targets."
In a quarter when J.P. Morgan Chase until Goldman Sachs saw a huge increase in trading in fixed income securities, analysts wanted to find out if Morgan Stanley would follow suit.
This happened: Bond trading helped the company's institutional securities division jump 32% in sales to $ 5.05 billion, compared to an estimate of $ 4.46 billion. Fixed income trading generated sales of $ 1.27 billion compared to an estimate of $ 933.5 million. At $ 1.92 billion, equity trading income was largely in line with expectations, as was investment banking at $ 1.58 billion.
In the company's massive wealth management division, sales increased 11% to $ 4.58 billion, an estimate of $ 4.39 billion as rising markets improved asset and transaction levels.
But it was the smallest division, investment management, that exceeded expectations most and had a positive impact on the company's overall sales.
The company had sales of $ 1.36 billion, nearly 100% more than a year earlier, and exceeded its estimate of $ 783.2 million by more than half a billion dollars. This appears to be due to a single investment: Morgan Stanley cited $ 670 million in investment income (an increase of 720% over the previous year) as a reason for participating in an IPO in Asia.
The quarter also included a tax benefit of $ 158 million and severance costs of $ 172 million. Morgan Stanley cut around 2% of its workforce last month due to uncertain global economic prospects. Experts said the impact on technology and operations was the hardest.
In his decade at the head of Morgan Stanley, Gorman focused the bank on wealth management and redesigned the once difficult area of bond trading. This has contributed to a stable result, and on Thursday the bank set new and higher financial targets for the return on average material equity, asset management margins and efficiency.
In the past year, the bank aimed for an average return on equity of up to 14.5%. The bank's "longer-term aspirations" at ROTCE are now between 15% and 17%, the bank said.
Morgan Stanley is the last of the six largest US banks to report results.
Earlier this week, J.P. Morgan, Citigroup, and Bank of America posted gains that exceeded analysts' expectations regarding rising bond trading results. The results at Wells Fargo and Goldman Sachs were both burdened by legal costs associated with scandals: at Wells, legal costs were associated with the problem of falsified accounts, while Goldman was approaching a solution to his 1MDB investigation.
This is what Wall Street is expecting from Morgan Stanley:
Earnings: 99 cents per share, 24% more than a year earlier, according to Refinitiv
Revenue: $ 9.72 billion, 14% more than a year earlier
Wealth Management: $ 4.39 billion according to FactSet
Trading: Equities $ 1.93 billion, fixed income $ 933.5 million