Morgan Stanley Q2 earnings: ‘it knows how to grow in an environment like this’

Morgan Stanley (NYSE: MS) opened 5.0% up on Tuesday after reporting better-than-expected results for its fiscal second quarter.

Wealth management division did well in Q2

Investors are particularly happy because higher interest income fuelled a 16% annualised growth in the bank’s wealth management revenue that handily topped Street estimates.

Morgan Stanley took net new client assets worth $90 billion in Q2. In a recent note to clients, Richard Bove – an Odeon Capital analyst said:

Morgan Stanley knows how to grow in an environment like this. The company’s debt and preferred offering are attractive.

Last month, the financial services behemoth raised its quarterly dividend by 9.7% after sailing through the Fed’s annual stress test. Morgan Stanley shares are still down close to 10% versus their year-to-date high.

Notable figures in Morgan Stanley Q2 earnings

• Net income printed at $2.20 billion versus the year-ago $2.50 billion
• Per-share earnings also declined materially from $1.39 to $1.24
• Revenue increased 3.0% on a year-over-year basis to $13.5 billion
• FactSet consensus was $1.20 a share on $13.02 billion in revenue
• $1.08 billion of investment banking revenue matched expectations

Are Morgan Stanley shares worth buying?

Morgan Stanley attributed the hit to profit to deal making that slowed down in its recently concluded quarter.

A 24% decline in advisory revenue was offset by strength in equity and fixed income underwriting in Q2, as per the earnings press release. Still, Odeon Capital’s Bove wrote:

Managements have increased in confidence that a stiff recession may not be ahead of us. This suggests strong M&A market for a period. Additionally, new equity offerings are proliferating.

Note that the multinational reauthorised its $20 billion stock buyback programme last month. Bove currently has a “buy” rating on the bank stock.