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Morgan Stanley (NYSE:MS) Reports Record Q1 Profit But Warns Of Future

A surge in trading activity in the first quarter helped Morgan Stanley (NYSE: MS) report record first-quarter profit that topped Wall Street expectations.

A surge in trading activity in the first quarter helped Morgan Stanley (NYSE:MS) report record first-quarter profit that topped Wall Street expectations. However, just like other Wall Street banks, the investment bank has warned of an imminent storm that could affect earnings going forward.

Q1 Financial Results

Profits in the quarter rose 40% to $2.6 billion or $1.45 a share. Analysts were expecting the financial institution to report earnings of $1.25 a share. Profit in the quarter hit record high helped by a lower tax bill as well as a boost in revenue from volatile markets.

The New York investment bank saw its tax bill drop sharply by 12% as pre-tax profits rose 22%. The company paid a 21% tax rate compared to 30% paid in the previous years.

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The company reported a 26% increase in trading revenue that came in at $4.4 billion. The Institutional securities division generated net revenues of $6.1 billion, compared to $5.2 billion reported a year earlier. Total revenue, on the other hand, rose 14% to $11.1 billion.

The Wealth management business was also on a roll generating a pretax profit of $1.2 billion, compared to $973 million reported a year earlier. Morgan Stanley also reported an increase in mergers and acquisitions advisory fees compared to its fiercest rival Goldman Sachs Group Inc. (NYSE:GS) that reported a drop.

Morgan Stanley operations flourished in the first quarter partly because, major economies in the world expanded as U.S interest rates also rose. The financial institutional trading revenues also benefited from high levels of volatility that proved beneficial for trading activities.

Headwinds

Amidst the stellar performance in the first quarter, Morgan Stanley has warned that the momentum experienced in the first quarter might be losing pace. Growing geopolitical tensions, as well as trade conflicts, are some of the headwinds that continue to raise concerns in the capital markets.

However, Chief Financial Officer, Jonathan Pruzan, believes Morgan Stanley has what it takes to navigate the choppy waters. According to the executive, the bank should be able to generate at least $7.5 billion when the markets are tough given the steps taken to grow consistent income streams.

“If Morgan Stanley’s strategy could be defined simply, it would be that we will do fine when the markets are tough, and we would do well when the markets are good,” Chief Executive Officer James Gorman said on a call with analysts.

A closer look at the first quarter financial results indicates that Morgan Stanley was right to tweak its business model after the financial crisis. The investment bank has in recent years increased its focus on the asset management business as it strives to become less risky and dependable.

Morgan is aiming for a much smaller but dependable trading business. In contrast, Goldman Sachs, its fiercest rival, has sought to make a name for itself on trading and handling private-equity businesses.

When it comes to stock performance, Morgan Stanley has rallied by more than 30% over the past one year an indication that investors love its new strategy. Goldman Sachs, on the other hand, is up by less than 20%.

This article was originally posted on FX Empire

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