Morgan Stanley beats profit estimates as rising stocks benefit wealth management and fund business

Morgan Stanley on Thursday beat analysts’ estimates for second-quarter profit as a buoyant stock market helped two of the investment bank’s three main businesses. 

The bank posted earnings of $2.2 billion, or $1.23 a share, exceeding the $1.14 estimate of analysts surveyed by Refinitive. The company’s revenue came in at $10.24 billion, exceeding the consensus estimate by almost $250 million, on better-than-expected results in the firm’s wealth management and investment management divisions. 

Morgan Stanley’s wealth management division, one of the biggest in the world, posted a record $4.41 billion in revenue, exceeding analyst’s estimate by $60 million. Its investment management division, an asset manager that creates mutual funds, posted $839 million in revenue, exceeding estimates by about $130 million. The business benefited from “higher assets under management” across asset classes, according to the firm.  

Rising markets helped in “both the wealth business, in terms of the assets we manage, as well as our investment management business, it’s fee times the balances,” Chief Financial Officer Jonathan Pruzan said in a phone interview. “If the markets go down, you’d expect to see pressure in that area.”

Under CEO James Gorman, Morgan Stanley has emphasized its wealth management division, a far steadier business than its trading operations. The brokerage benefits from rising markets as fees typically climb along with assets under management.

“We reported solid quarterly results across all our businesses,” Gorman said in the earnings release. “We remain focused on serving our clients and pursuing growth opportunities while diligently managing expenses.”

Results were more mixed in the firm’s biggest business, institutional securities, which houses its Wall Street investment banking and trading operations. Equities trading produced $2.13 billion in revenue, under the $2.2 billion estimate of analysts surveyed by FactSet. Fixed income trading made $1.13 billion in revenue, missing the $1.32 billion estimate. Investment banking generated $1.47 billion in revenue, edging out the $1.4 billion estimate. 

Shares of the firm have climbed 10% so far this year, trailing the KBW Bank Index and competitors including Goldman Sachs and J.P. Morgan Chase.

The bank said last month that it won permission from the Federal Reserve to increase its quarterly dividend to 35 cents a share from 30 cents and repurchase $6 billion in shares.

Morgan Stanley is the last of the six largest U.S. banks to report second-quarter earnings. Citigroup, J.P. Morgan, Wells Fargo, Goldman Sachs and Bank of America all beat analysts’ profit expectations as most of the firms benefited from one-time items including a gain on the IPO of electronic trading platform Tradeweb.

Here’s what Wall Street expected:

• Earnings: $1.14 a share, 12% lower than a year earlier, according to Refinitiv
• Revenue: $9.99 billion, 5.8% lower than a year earlier
• Wealth management: $4.35 billion, according to FactSet
• Trading: Equities $2.2 billion, fixed Income $1.32 billion

With reporting from CNBC’s Leslie Picker.