FINANCIALS: Morgan Stanley: IB-driven Beat Should Underpin Spreads

Morgan Stanley (MS:  A1/A-/A+) results showed strong capital and credit stats. Equity investors may question the flows in the wealth and asset businesses (which slowed) but the IB performance was very strong. Its EUR bonds have outperformed, and this consensus beat should underpin that.

• Credit stats: loan loss provisions remain nominal for MS and net charge-offs were nominal. MS isn’t a “credit bank” in the traditional sense. CET1 is 15.3% (advanced) which is 10bp better than consensus. So, no surprises.
• Revenues are c.5% ahead of expectations, driven by the equities business, alongside M&A but also DCM in a creditable divergence from some of the peer group. Conversely, net new assets in wealth, alongside net flows in asset mgmt are rather below consensus. However, these are such low credit risk businesses, this is an equity issue, not a credit one, we feel. Pre-tax was still 12% ahead of expectations.
• Outlook: MS is normally reticent around such statements, and we feel the call will likely focus on the sustainability of that IB performance alongside where wealth and asset flows are likely to head. This will define any consensus moves but we struggle to see too much of today’s beat being translated directly into FY24 figures.

Conf call is 1430 (London time) at: https://morganstanley.webcasts.com/starthere.jsp?ei=1674473&tp_key=8d0ebbcd2c