Morgan Stanley posts $9.02 billion in revenue and $0.81 EPS

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The jury is out on banking stocks. On the one hand, the consensus is that we are entering an era of rising interest rates, what with the Fed having raised the federal funds rate by 25-basis points on December 14, 2016. Higher interest rates go hand-in-hand with increased profitability for banks and financial institutions. The recent quarterly performance of Morgan Stanley (MS) has not factored the latest rate hike into account, and yet the bank’s profitability has surged. On Tuesday, 17 January 2017, Morgan Stanley released its quarterly earnings reports, and the actual figures bested forecasts by a long margin. The Chief Financial Officer of the company, Mr. Jon Pruzan expressed significant optimism about the bank’s current performance.

What Macroeconomic Issues Work in Morgan Stanley’s Favour?

Now that the Trump administration is firmly in place, we can expect the next 100 days to be packed with a cavalcade of economic incentives for the corporate sector. These include the vaunted corporate tax cut to 15% (Speaker of the House Paul Ryan believes that 20% is more realistic), deregulation of the financial industry and the corporate sector in general, an America First policy, and repatriation of foreign income earned by American companies. These are but a handful of the issues that are likely to take centre stage in 2017. President Trump will be hard at work signing executive orders from day one, and many big banks are hoping that Trump will put policies in place that will help banks generate higher revenues and keep more of their profits. The numbers speak for themselves: Morgan Stanley increased its revenue from trading and bond sales to $1.5 billion, from just $550 million in 2016. Add in trading net revenues and total sales, and the figure increases to $3.2 billion – that’s a 39% increase for Morgan Stanley.

What Were Analysts Expecting from Morgan Stanley in Q4 2016?

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Reuters analysts expected Morgan Stanley (MS) to generate EPS of $0.65, and revenue in the region of $8.47 billion. As the above chart reflects, the most recent quarter generated a positive earnings surprise of 24.62%. That the consensus EPS was $0.65 and the actual EPS came in at $0.81 is significant. After the earnings report, Morgan Stanley (MS) stock rose by 1.5%. A year ago, wealth management pretax income was $768 million, and the latest figure was reported at $891 million. Morgan Stanley also generated increased asset management fee revenues, while reporting a 26% spike in net interest income. For the year ending 31 December 2016, the return on equity averaged 8%. This positive performance goes hand-in-hand with Morgan Stanley’s decision to reduce bonuses by 15% and lay off several investment bankers. It should be pointed out that the financial sector has rallied 17% since the results of the November 8 presidential election. However, that doesn’t tell the story of Morgan Stanley (MS) stock which is up 28% since then.

How does Morgan Stanley (MS) Stock Compare to other Financial Stocks Since December?

• Citigroup Inc. (C) stock is down 6.81% since December 20, 2016.
• Morgan Stanley (MS) stock is down 2.41% since December 20, 2016
• JPMorgan Chase & Company (JPM) is down 3.73% since December 20, 2016.
• Wells Fargo & Company (WFC) stock is down 2.71% since December 20, 2016.
• The Charles Schwab Corporation (SCHW) is up 3.21% since December 20, 2016.
• Bank of America Corporation (BAC) stock is down 0.79% since December 20, 2016.

Over the past 1 month the performance of banking and financial stocks has been bearish, but experts remain convinced that financials will outpace the market average by a long margin. As a binary options trader, you can take your cue from the positive results released in the Q4 earnings reports.