Morgan Stanley Q1 net profit increased by 26.5%, with strong growth in stock trading and fixed income business | Earnings Report Insights

Morgan Stanley's Q1 revenue increased by 17.19% year-on-year, reaching a record high, primarily due to "strong client activity." Stock trading and fixed income businesses exceeded expectations, but the wealth management division's revenue fell short of forecasts.

Notably, the bank's investment banking division generated $692 million in the "other" revenue category, a significant increase from $242 million in the same period last year. According to Bloomberg, citing informed sources, this growth mainly came from the sale of loans related to Elon Musk's social media platform X.

On the 11th, Morgan Stanley announced its first-quarter financial report:

• Revenue: Morgan Stanley's Q1 revenue was $17.7 billion, estimated at $16.56 billion, a year-on-year increase of 17.19%;
• Net Profit: Net profit was $4.315 billion, compared to $3.412 billion in the same period last year, a year-on-year increase of 26.5%;
• Earnings Per Share: Earnings per share were $2.60.

Core Business Performance:

• Wealth Management: Revenue was $7.3 billion, estimated at $7.44 billion;

• Equity Sales and Trading: Revenue was $4.13 billion, a year-on-year increase of 45%, estimated at $3.42 billion;

• Fixed Income Underwriting: Revenue was $677 million, estimated at $552.6 million;

• FICC Sales and Trading: Revenue was $2.6 billion, expected to be $2.6 billion;

• Institutional Investment Banking: Revenue was $1.56 billion, expected to be $1.51 billion;

• Advisory: Revenue was $563 million, estimated at $642.1 million;

• Equity Underwriting: Revenue was $319 million, estimated at $357.8 million.

In the first quarter, Morgan Stanley's return on equity was 20%, estimated at 15.1%; the tangible return on equity was 37%, estimated at 20%.

Morgan Stanley's U.S. stock rose nearly 3% in pre-market trading.

Strong Performance in Stock Trading Division, but Weakness in Wealth Management Division

Morgan Stanley's first-quarter results were mixed.

The company's revenue was $17.7 billion, exceeding market expectations of $16.56 billion. Among them, equity sales and trading revenue performed well, reaching $4.13 billion, a year-on-year increase of 45%, far exceeding the expected $3.42 billion.

However, the net income of the wealth management division was $7.3 billion, below the expected $7.44 billion.

Notably, both the pre-tax profit and profit margin of its wealth management division fell short of expectations. The pre-tax profit was $2 billion, below the expected $2.09 billion, and the pre-tax profit margin was 26.6%, also below the expected 28.2%

Impact of Cost Control Measures and Layoffs

Morgan Stanley Co-President Dan Simkowitz stated that clients are assessing the changes in Trump's policies, and announcements of mergers and acquisitions as well as new stock issuances are "definitely on hold." Nevertheless, he added that trading volumes may remain "slightly" until policies become clearer.

The company's financial report also showed that non-interest expenses in the first quarter amounted to $12.1 billion, exceeding expectations. This includes $144 million in severance pay, as the company laid off approximately 2,000 employees in March to control costs.

According to its earnings report, these layoffs affected various business units and regions, impacting about 2% of employees at that time.

Sticking to Loan Sales from Musk's X Platform, Morgan Stanley Reaps Rich Rewards

Notably, the bank's investment banking division generated $692 million in the "other" income category, a significant increase from $242 million in the same period last year. According to Bloomberg, citing informed sources, this growth primarily came from the sale of loans related to Musk's social media platform X.

Morgan Stanley only stated in its financial report that this growth was "mainly due to gains realized from the sale of corporate loans held for sale," without detailing which specific loans were involved.

Morgan Stanley led the banking team that provided debt financing for Musk's acquisition of Twitter in 2022. For much of the time thereafter, these banks held $13 billion in debt, struggling to find buyers willing to take it on.

However, Musk's relationship with Trump, the stabilization of X's financial situation, and his stake in the AI startup xAI collectively helped persuade investors who had previously refused to take on this debt. Reports indicated that these factors ultimately led to the sale of loans that had been difficult to sell for over two years.

During the holding period, Morgan Stanley also benefited from interest payments on the loans from X. This made the transaction a rare case in the market: a "shelved deal" that ultimately allowed the bank to profit rather than incur losses