October 27, 2021

Morgan Stanley becomes the latest US bank to report record profits

Morgan Stanley followed its competitors' lead in the first quarter as tax cuts and cost-cutting helped deliver record profits.

The figures

The Wall Street giant reported net revenues of $11.1bn (£7.8bn) for the quarter ending 31 March 31, up by 14 per cent compared the same period last year.

Net income reached $2.7bn, a 42 per cent surge year-on-year. That equated to earnings per diluted share of $1.45, far above the $1.25 consensus estimate reported beforehand by S&P Global Market Intelligence.

Higher revenues pushed up pay costs to $4.9bn for the quarter, while non-compensation expenses of $2.7bn increased from $2.5bn. Those higher "principally on higher volume-driven expenses".

The annualised return on equity (ROE), a measure of how well the bank used investor money, was 14.9 per cent, while return on average tangible common equity was 17.2 per cent.

Why it's interesting

The results continue a strong run of US bank earnings with a confluence of favourable factors boosting the sector: US Federal Reserve interest rates are rising, while a bout of market volatility in the first quarter boosted trading desks, and the US Republican party forced through unfunded tax cuts at the end of last year. Indeed, Morgan Stanley's effective tax rate fell from 29 per cent a year ago to only 20.9 per cent in the first quarter.

Morgan Stanley's institutional securities revenues reached $6.1bn in the first quarter – almost $1bn higher than the same period last year – thanks to a 30 per cent increase in earnings from equity sales thanks to the stock market correction driving clients to reposition.

Bond trading also improved, albeit less dramatically, in contrast to competitor Bank of America which saw trading revenues actually fall.

What Morgan Stanley said

James Gorman, Morgan Stanley's chairman and chief executive, said: “We delivered very strong results this quarter, with record revenues and net income – and an ROE above our target range.

Each of our businesses performed well, with significant client engagement across our global franchise, and sales and trading [were[ a particular highlight in a more active environment.

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