Morgan Stanley is the latest large U.S. investment bank to release its Q2 results. Relatively speaking, its results are very good. Here’s what you need to know.
1. Morgan Stanley’s fixed income revenues have surged
At Goldman Sachs, revenues in fixed income currencies and commodities fell by 28% on the back of “unhealthy” levels of volatility due to the Greek crisis. Morgan Stanley appears to have played it better. Year-on-year, its fixed income and commodities trading revenues were up 30% in Q2 and for the first half were up by 21%. No wonder it’s hiring here.
However, it’s not all good – revenues were bolstered in FX and rates, while commodities and credit continued to be hit hard.
2. All without really increasing VaR
As we’ve mentioned previously, even if traders are performing, Morgan Stanley seems more reluctant than its rivals to increase risk parameters for its traders. So it was again in Q2 (table below shows the value-at-risk – L-R – for the quarter to June 2015, then March 2015 and Q2 in 2014).
3. Morgan Stanley is the only bank to increase revenues in equities AND fixed income
Equities is comparatively low margin, so when rivals like Goldman Sachs posted a massive 63% year on year increase in Q2, this is was deemed less impressive than sustaining the ‘engine room’ of profits in fixed income. Morgan Stanley’s equities revenues were also up by 28% year on year during the second quarter – the only bank to increase revenues in both business areas. It’s not a bad time to work in its securities arm. Even better, Morgan Stanley’s equities revenues, at $2.27bn in Q2, beat Goldman’s $2bn.
4. Morgan Stanley’s headcount is stable
Morgan Stanley no longer breaks out headcount by division, so it’s impossible to tell whether its investment bank has been growing. However, overall headcount has been on the decline, albeit by relatively small margins. It now has 55,795 employees – a 1% decline on last year.
5. Compensation is up
By 5% year-on-year across the group. Again, it’s impossible to know whether its impressive traders have benefitted, but compensation across the investment bank increased by $200m, or around 12% on Q2 2014.
6. Morgan Stanley’s investment bankers look less impressive
If Morgan Stanley is not rewarding its traders, it seems unlikely that its investment bankers will be getting bigger pay packets. Revenues for its advisory function were up by 1% on Q2 2014, but increased by a more impressive 19% for the first half compared to last year. M&A revenues were up 62% year-on-year in the second quarter at Goldman Sachs and by 17% over the same period at J.P. Morgan.
7. Asia is the growth region
Revenues in the Americas still by far strip other parts of the world at Morgan Stanley, but relatively speaking Asia has led the way in terms of growth. Revenues in Asia were up by 56% in the second quarter year-on-year. By comparison, EMEA was down by 4% and Americas posted a more modest rise of 11%.