Morgan Stanley (MS +2.4%) is trading higher after a solid Q2 earnings report. The firm posted back-to-back double-digit EPS beats for the first time since Q2-Q3 of 2021. Revenue surged 11.6% year-over-year to $15.02 billion, surpassing expectations. This marked Morgan Stanley's first double-digit year-over-year revenue growth quarter since Q3 2021, driven by strength in equity and a notable uptick in investment banking.
- The Institutional Securities segment was the main growth driver, with revenue soaring 23.5% year-over-year to $6.98 billion. This reflected strong performance across the franchise, particularly in equity, which saw an 18% year-over-year increase to $3.02 billion, and investment banking (IB), which benefited from robust debt underwriting results.
- IB revenue was a standout, jumping 51% year-over-year to $1.62 billion, a significant improvement from 16% growth in Q1. Advisory revenue grew due to a higher number of completed M&A transactions. Equity underwriting revenue was driven by private placements, IPOs, and convertible offerings. Fixed income underwriting revenue also saw a substantial year-over-year increase, primarily due to higher non-investment grade issuances.
- The Wealth Management segment saw a modest 2% year-over-year revenue increase to $6.79 billion, following a 5% growth in Q1. The tepid growth was mainly due to consumers shifting funds into accounts offering higher interest rates, leading to a 17% year-over-year decline in net interest to $1.8 billion. However, the Asset Management subsegment had a record quarter with revenue growing 16% year-over-year to $3.99 billion.
- The Investment Management segment, the smallest for Morgan Stanley, saw an 8% year-over-year revenue increase to $1.39 billion. Asset management fees rose due to higher average assets under management (AUM) driven by improved market levels.
Overall, Morgan Stanley had a strong quarter. The headline numbers were impressive, particularly the top-line growth. The firm noted that the resilience of the US economy and a stable near-term outlook on rates boosted client confidence. The significant growth in investment banking revenue was especially noteworthy, driven by increased M&A activity and a rise in IPOs.
Additionally, Morgan Stanley's stock has been trending higher since late October, when the Federal Reserve hinted at potential rate cuts. The stock has recently traded above the $100 mark, reflecting investor optimism about the company's prospects and the broader rate environment. This Q2 report supports the recent upward trend in share price.
