By Parth Parikh,
Money and Investing Writer
As the new year gets underway, it also kicks off earnings season for the fourth quarter of 2016, one of the more economically important quarters in business. As always, the banks are one of the first sectors to announce earnings, and Morgan Stanley (NYSE: MS) beat analyst expectations to end the year.
The large financial institution led by CEO James Gorman posted $1.67 billion in revenue for the quarter, compared to the $908 million profit reached in 2015. For investors looking to earn some dividends, Morgan Stanley led the way with 81 cents per share, which blew past predictions of around 48 cents per share.
One of the biggest reasons Morgan Stanley was able to post these tremendous numbers is also the reason why Wall Street and other large banks have done very well in recent months. With Donald Trump’s election as the 45th President of the United States, many investors anticipating a different outcome began to panic and worry about the future of the economy.
Throughout the election process, Trump called out many well-known corporations and told the American people that he will keep businesses in check, not letting banks and other large firms control
Washington and its politics. Thus, as November 8 progressed and a Trump presidency seemed more likely, anxious investors began pulling their money from the stock market, while other investors began investing in companies that would thrive under a Trump campaign.
For those looking for a safe haven for their wealth, investors started looking to bonds and other fixed income sources in order to save their money from market movements.
It is that movement of wealth from equities to the fixed income markets that sparked Morgan Stanley’s bond trading numbers, and as a result, their overall earnings. After posting fixed income sales and trading revenue of $550 million in 2015, the company tripled that amount to record $1.5 billion in revenue for the year. This rise in revenue, in combination with department restructuring that included cutting staff and hiring new managers, has made Morgan Stanley one of the top surprises of this year’s earnings season, as well getting 2017 off to a good start. The news of this hike in bond trading resonated well with CEO Gorman, who announced that bonds trading revenues have reached and surpassed his target for two consecutive quarters.
Morgan Stanley reached revenue targets in their equities department and has said to be close in reaching, cost cutting and other goals created by the CEO.
However, for every positive note in an earnings call, something also becomes an issue for the firm, and in Morgan Stanley’s case, net income fell five percent, in large part to the restructuring of the bond, as well as other, departments within the firm. In addition, wealth management revenues fell 1.7 percent to $3.8 billion, creating a problem for a firm that is expected to do particularly well in all aspects of finance.
Fortunately, wealth management profits is one of the goals that Gorman wants to see improve, and we will see next quarter if there are any updates on those fronts.
A version of this article appeared in the Tuesday, January 24th print edition.
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