Morgan Stanley will announce its first quarter earnings tomorrow morning around 7:15 a.m., drawing a close to earnings week for America’s biggest banks. (Bank of America is set to report at 7 a.m. tomorrow).
Analysts are expecting earnings of $0.42 per share on revenue of $7.31 billion, according to First Call. The consensus estimates for Morgan Stanley has been repeatedly cut since the beginning of the year as analysts noted that Morgan Stanley could suffer from low trading revenue and low investment banking activity.
However, Morgan Stanley has more at stake this earnings season than the rest of its Wall Street peers.
With a possible Moody’s downgrade looming, Morgan’s Q1 numbers will be one of the last big factors Moody’s takes into consideration before making its ratings decision in June, according to the Wall Street Journal.
In February, Moody’s warned Morgan Stanley was one of three banks in danger of a three-notch downgrade (Credit Suisse and UBS are the other two) to Baa2 (it’s currently at A2), which would be 2 notches away from junk status. A downgrade would force the bank to put up significantly more collateral to counterparties in trades and might also handicap their derivatives business.
Moody’s has noted that in such volatile economic conditions, banks like Morgan Stanley and Goldman Sachs—which focus a majority of their business on investment banking and trading—are not diversified enough to remain stable. In Goldman’s Q1 earnings Tuesday, the bank beat in both top and bottom line estimates, but did report lower year-over-year overall profits and revenues for investment banking.