Morgan Stanley posts Q4 revenue beat despite gloomy economic conditions

Morgan Stanley posts Q4 revenue beat despite gloomy economic conditions
© Reuters.

By Scott Kanowsky — Morgan Stanley (NYSE:MS) reported better-than-expected fourth-quarter revenue, as higher borrowing costs helped the U.S. banking giant weather a slump in dealmaking that weighed on equity trading.

Group-wide net revenues slipped by 12% year-on-year to $12.75 billion, but were still above estimates of $12.43B. Despite gloomy trading conditions, net revenues at Morgan Stanley’s wealth management division rose by 6% thanks to a recent uptick in interest rates and bank lending growth.

Offsetting this increase were equity net revenues, which fell by 24% compared to the prior year to $2.18B. That was below consensus estimates of $2.4B, according to data compiled by Bloomberg.

Concerns over the economy fueled a downturn in completed mergers and acquisitions, which in turn impacted a key source of returns for the lender’s advisory business. Equity and fixed income underwriting revenues also dipped as volumes and bond issuances slid.

These trends contributed to institutional investment banking revenues nearly halving in the three months to December 31 to $1.25B, although the figure managed to beat predictions of $1.19B.

“[T]he crown-jewel of the company, the global wealth management unit, performed very well in Q4 (posting upside on both revenues and margins), but the trading results were poor, especially within equities, and this will probably color the near-term conversation in a negative light,” analysts at Vital Knowledge said in a note.

Net income applicable to Morgan Stanley in the fourth quarter slumped by 15% to $2.24B, as the company moved to bolster its provisions for credit losses and faced severance costs of $133M connected to a December employee action. However, in a statement, Morgan Stanley Chairman and Chief Executive James Gorman called the bank’s quarterly performance “solid” despite the “difficult market environment.”

Shares in Morgan Stanley rose by more than 1% in pre-market U.S. trading on Tuesday.