Morgan Stanley beats on earnings despite big hit to trading revenue

GettyJames Gorman, the chairman and CEO of Morgan Stanley.

Morgan Stanley released fourth-quarter earnings Thursday, and, like the rest of the big Wall Street banks, it beat analyst expectations.

The bank reported adjusted earnings of $US0.84 a share; analysts had been expecting Morgan Stanley to produce adjusted earnings of $US0.77 a share.

“Over the course of the full year we achieved the strategic objectives outlined two years ago,” CEO James Gorman said. “In 2017, pretax earnings grew by 18%, driven by a 10% increase in revenues, with growth across all our business segments. This, coupled with strong expense discipline demonstrates the firm’s operating leverage. We enter 2018 with strong momentum aided by rising interest rates, tax reform, and an evolving regulatory framework.”

Morgan Stanley is the last of the big US banks to report, and, like the others, its nonadjusted earnings took a one-time hit from the new tax law.

But Morgan Stanley’s net $US1.2 billion loss on the law – primarily from deferred tax assets that declined in value – came in below the $US1.25 billion that analysts projected and well below those of its Wall Street counterparts.

The bank’s fixed-income sales and trading took a big hit in the fourth quarter, with revenue falling 46% to $US808 million. Fixed income suffered across Wall Street, but Morgan Stanley’s decline is on par with Goldman Sachs’ 50% drop – a historically bad quarter in bond trading.

Here are the highlights:

  • Net revenue of $US9.5 billion, beating estimates of $US9.24 billion
  • Adjusted net income of $US1.7 billion, beating estimates of $US1.43 billion
  • Wealth-management revenue of $US4.4 billion, a record
  • Investment-banking revenue of $US1.4 billion, up 7.7% from $US1.3 billion last year
  • Fixed-income sales and trading net revenue of $US808 million, down 46% from $US1.5 billion last year
  • Equity sales and trading net revenue of $US1.9 billion, down 5% from $US2.0 billion last year

This story is developing.

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