Skip to content

Morgan Stanley Q1 Profits Surpass Expectations

Morgan Stanley's Q1 profits exceeded forecasts as wealth management revenue increased, compensating for investment banking and trading revenue declines. The bank posted earnings of $1.70 per share, surpassing the average analyst estimate of $1.62 per share, according to Refinitiv data.

Morgan Stanley logo
Morgan Stanley logo

Stock Price Rises Amid Souring Loans

The bank's stock climbed 0.5% to $90.34 during afternoon trading. Morgan Stanley set aside $234 million in Q1 to cover deteriorating loans, up from $57 million a year prior, in preparation for a potential recession and commercial real estate market weakness.

CEO Addresses Banking Sector Concerns

Morgan Stanley CEO James Gorman told analysts that while there is no current banking crisis, some banks have experienced turmoil. He noted the collapse of two lenders in March was not comparable to the 2008 mortgage crisis.

U.S. Banks Report Strong Q1 Profits

Morgan Stanley and other major US banks like JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo reported better-than-expected Q1 profits. Higher interest rates helped boost their income, and they remained resilient amidst industry chaos.

Wealth Management Revenue Sees Significant Growth

The bank's wealth management revenue increased by 11% to $6.6 billion compared to the previous year. The division gained $110 billion in net new assets, with only $20 billion coming from regional banks after the March turbulence, according to CFO Sharon Yeshaya.

Investment Banking Revenue Slumps

Morgan Stanley's investment banking revenue faced a nearly 2% decline, falling to $14.5 billion for the quarter. Investment banks, including Morgan Stanley, have been hit hard by a downturn in mergers and acquisitions due to investor caution in volatile markets and rapidly rising interest rates.

Global M&A Activity Hits Low Point

Data from Dealogic reveals that global mergers and acquisitions activity reached its lowest level in over a decade during Q1 2023, with volumes dropping 48% to $575.1 billion compared to a year prior.

James Gorman, Morgan Stanley CEO
James Gorman, Morgan Stanley CEO

Trading Revenues Fall as Markets Struggle

Stock trading revenue dropped 14% to $2.7 billion as equity markets declined, while fixed income revenue fell 12% to $2.5 billion. Yeshaya noted that predicting the outlook for the remainder of the year is difficult and emphasized the importance of market stability in boosting confidence.

Federal Reserve Rate Hikes and Economic Risks

Gorman anticipated one or two more Federal Reserve interest rate increases, ranging from 5% to 6%. He highlighted risks like commercial real estate weakness, geopolitical tensions, banking sector stress, and uneven global economic growth.

Commercial Real Estate Remains a Concern

Major US banks have expressed concerns over the office commercial real estate sector, with falling property values and increasing loan defaults due to rising interest rates and a slowing economy. Investment banks like Morgan Stanley and Goldman Sachs are relatively protected from these issues, but the uncertain economic outlook affects dealmaking.