Morgan Stanley Reports Earnings Wednesday. What to Expect.

Text size

A continued slowdown in deal making is expected to weigh on

Morgan Stanley

when it posts first-quarter results before the bell Wednesday.

Morgan Stanley (ticker: MS) is expected to post earnings of $2.8 billion, or $1.63 a share, down from $3.7 billion in the year-ago quarter, according to analysts surveyed by FactSet. Revenue is projected to tumble by 5% to $14 billion.

The anticipated declines come as investment banks have had to contend with a challenging environment for mergers and acquisitions. Unlike more diversified banks, such as

JPMorgan Chase

(JPM) and

Bank of America

(BAC), investment banks don’t benefit as much from higher interest rates because their loan books are a smaller portion of their revenue.

Higher interest rates have made it more expensive to finance deals, and macroeconomic concerns have made companies more reluctant to make big purchases. This drying up of M&A activity over the last 12 months comes after Morgan Stanley and other banks saw a boom in deal making amid the Federal Reserve’s easy money policies during the Covid-19 pandemic. 

---

Newsletter Sign-up

Review & Preview

Every weekday evening we highlight the consequential market news of the day and explain what’s likely to matter tomorrow.

---

While advisory and underwriting revenue is expected to be underwhelming, Wall Street is hoping that Morgan Stanley’s investment and wealth management business can provide some stability to earnings. Since the financial crisis of 2008-09, Morgan Stanley has been building up those businesses so it has more predictable core businesses to offset volatility in investment banking and trading. Those businesses now account for more than 50% of Morgan Stanley’s revenue, up from 26% in 2010.

Because of its efforts to stabilize its revenue and earnings, Morgan Stanley trades at a premium to peers. Its stock currently trades at 12.6 times forward earnings while

Goldman Sachs

(GS) and JPMorgan trade around 10 times.

Morgan Stanley’s results come one day after Goldman Sachs posted an 18% year-over-year drop in profits for its first quarter. Goldman also said its investment banking fees were down 26% from the prior year and that fixed income trading was down 17% while equities trading declined 7%.

Morgan Stanley is the last of the big banks to report earnings, leaving investors to turn their attention to the regional banks that are still reporting.

Write to Carleton English at [email protected]