Whatās Going On Here?Morgan Stanley ended US banksā reporting with a bang ā and better-than-expected earnings ā on Thursday. And no, it didnāt look back. What Does This Mean?Morgan Stanleyās fourth-quarter revenue was 27% higher than the same time last year, and the companyās profit rose 46%. That wasnāt just higher than investors had expected: it also capped off a record year for the bank.
As keen Finimizers mightāve expected, Morgan Stanleyās bond trading revenue rose in lockstep with the likes of Goldman Sachs, and the companyās wealth management segment ā i.e. investing rich peopleās money, which represents almost half the firmās earnings ā beat estimates too. But the star of the show was asset management, where quarterly revenue doubled versus a year ago. Why Should I Care?For markets: Frictionless markets.
Morgan Stanleyās stock rose 6% on Thursday, probably thanks to those strong results and the increased profit margin itās forecasting for its investment management businesses. The bank played a part, then, in pushing the US stock market to yet another record high on Thursday (tweet this). With lots of stockbrokers eliminating trade commissions late last year, thereās less than ever stopping retail investors from taking part in the ongoing stock market rally. Maybe thatās why investors in Charles Schwab shrugged off the brokerās worse-than-expected quarterly update: its plan to take over rival TD Ameritrade could make it a go-to for investors everywhere.
Zooming in: The best of both worlds.
Morgan Stanleyās currently poised between risky investment banking activities (like trading) and more stable businesses (like investment management). And by raising its profit margin forecasts for the latter segment, the bank might become a more attractive proposition still. Morgan Stanley will continue to benefit from trading windfalls as it did last quarter, but when that business slows (as it tends to), its predictable and highly profitable segments will keep earnings from falling too far. | 