Morgan Stanley reported better-than-expected profit in the second quarter, with growth in its wealth management business offsetting lower trading revenue. Despite a 14% drop in profits, Morgan Stanley shares rose over 6%. Excluding one-off items, the company earned $1.24 per share on revenue of $13.46 billion, surpassing estimates of $1.15 per share on $13.08 billion revenue.
CEO James Gorman expressed optimism about the economic environment, stating that the quarter ended on a positive note despite initial uncertainty over the banking crisis, geopolitical tension, and U.S. interest rates. Gorman believes that the end of rate increases is near, although not quite there yet.
The wealth management unit of Morgan Stanley performed well, with net revenue reaching a record $6.7 billion for the quarter and gaining nearly $90 billion in new assets. These results helped offset the decline in trading revenues due to decreased volatility. Fixed income revenue fell 31%, while equities dropped 14%. The bank’s earnings were also impacted by $300 million in severance costs following significant layoffs.
Revenue from investment banking remained flat at $1.16 billion. Analysts noted that the results were better than expected in a challenging environment. While trading was affected by subdued markets, Chief Financial Officer Sharon Yeshaya stated that the stabilizing market conditions had not yet stimulated activity in capital markets. However, she expects investment banking to lead the recovery in the next quarter, as mergers and acquisitions are increasing in industries such as financials and energy.
Morgan Stanley’s stock responded positively to the improved outlook for the rest of the year, according to analyst James Shanahan. CEO James Gorman announced in May that he would step down within a year, and the board is currently focusing on selecting his successor. Among the top candidates are Ted Pick, the co-president in charge of investment banking and trading, and Andy Saperstein, the co-president overseeing wealth management. Gorman emphasized that the performance of the business units is not the sole consideration for the CEO selection process. Revenue from investment management, led by the third candidate Dan Simkowitz, declined by 2%.
In conclusion, Morgan Stanley’s second-quarter results exceeded expectations, driven by growth in its wealth management business. Despite lower trading revenue, the company remains optimistic about the economic environment. Investment banking is expected to lead the recovery in the next quarter, and the board is actively considering potential successors for CEO James Gorman.
