Morgan Stanley Drives Growth Powered by Investment Management

Key Points

• Morgan Stanley posted a solid Q1 2024 EPS beat by 35 cents and revenue beat by nearly $700 million.
• Investment banking saw a 16% YoY revenue growth as momentum is accelerating with the new issue calendar and underwritings.
• Client assets under management grew to $7 trillion in Q1 2024.

Global financial services provider Morgan Stanley NYSE: MS is the sixth-largest financial institution in the United States and the 39th-largest bank worldwide. The finance sector leader competes with Goldman Sachs Group Inc. NYSE: GS, JP Morgan Chase & Co. NYSE: JPM and retail broker Charles Schwab Co. NYSE: SCHW.

Morgan Stanley posted blowout Q1 2024 earnings as its major segments all showed robust growth. Most notable was the relative outperformance of its investment management segment which saw revenues grow 6.8% YoY.

Daily Ascending Triangle Breakout Pattern

MS triggered a daily ascending triangle breakout pattern. The ascending trendline formed at the $85.01 swing low on April 11, 2024. Pullbacks formed at higher lows. The flat-top resistance formed at $94.07 as it was rejected on April 24, 2024. MS pulled back to the $90.94 level before triggering a market structure low (MSL) breakout through the $92.48 trigger, leading to the breakout through the flat-top resistance. The daily relative strength index (RSI) rose to the 70-band as shares continued to rise higher on consecutive daily highs. Pullback support levels are at $94.07, $90.94, $85.01 and $83.09.

Solid Q1 2024 Performance

Morgan Stanley reported Q1 2024 EPS of $2.02, beating consensus estimates for $1.67 by 35 cents. Revenues rose 4.3% YoY to 15.14 billion, beating consensus analyst estimates of $14.42 billion. Strong asset growth propelled client assets to $7 trillion across Wealth and Investment Management segments. The firm delivered a strong ROTCE of 19.07%. The expense efficiency ratio was 71%. Standardized common equity Tier 1 capital ratio was 15.1%. Net interest income (NII) came in lighter than expectations at $1.8 billion versus $1.99 billion consensus estimates.

Institutional Securities Performance

Morgan Stanley's largest revenue-generating segment, Institutional Securities, with 46% of total revenues, saw net revenues of $7 billion, up from $6.8 billion in the year-ago period. Despite being the largest, it was a laggard, delivering 3.2% YoY revenue growth. The sharp slowdown in merger and acquisitions (M&A) activity led to a 27.7% drop in Advisory revenues. This was a key soft spot compared to Goldman Sach's 23.5% spike in its M&A Advisory business. However, the firm believes it could see a robust recovery once interest rates start to drop. Investment banking saw a sharp 16% YoY revenue spike.

Let's take a closer look at the performance of Morgan Stanley's three major business segments. 

Wealth Management Performance

Wealth Management generated 45% of total revenues. Net revenues rose 4.9% YoY to $6.9 billion, up from $6.6 billion in the year-ago period. The firm attracted $95 billion in net new assets in the quarter, with nearly 50% coming from inflows from its family office offering. However, that amount was actually a slip of 13.4% YoY, which was worse than the 7.9% drop in Q4 2023.

Investment Management Performance

While this segment generates the least portion of total revenues, at 9%, it had the largest relative revenue gain, growing at 6.8% YoY. This was directly associated with rising equity markets, which caused assets under management (AUM) to grow and, accordingly, the amount of asset management fees collected to increase.

Conference Call Highlights

Morgan Stanley had an upbeat conference call as management was positive about its advisory pipeline continuing to grow. However, they did concede that near-term uncertainty could impact the timing of realizing benefits connected to its pipeline. The underlying trend still suggests sentiment and confidence are improving. Total deposits were flat QoQ. NII will be in line with Q1.

Morgan Stanley CEO Ted Pick was bullish on new issues coming to market. Momentum is building in investment banking both in M&A and underwriting pipelines.

CEO Pick said, “The first quarter of 2024 aligns with the goals outlined in the January strategy deck: $15 billion of revenue, a 71% efficiency ratio, $2 of earnings, $7 trillion of client assets, and a 20% return on tangible.”

Pick concluded, “We have strong backlogs and momentum in every part of the firm. While the pipelines are healthy, there remains a backdrop of economic and geopolitical uncertainty. Our job is to generate these kinds of durable results on a consistent basis. I'm very optimistic about what lies ahead for Morgan Stanley.”

Morgan Stanley analyst ratings and price targets are at MarketBeat.