Will Morgan Stanley (NYSE: MS) Securities Business Lead the Company Lower

January 16, 2018, 09:26 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Morgan Stanley’s (NYSE: MS) third quarter results indicated that the investment bank posted declining revenues from its sales and equity trading division. The question on most investors’ minds given that the bank is about to announce its fourth quarter results is whether the bank’s securities division shall replicate the results witnessed last quarter.

Article Summary

Morgan Stanley’s securities business division declined in Q3 2017.

The bank recently announced bonuses and promotions within its ranks.

The bank’s overall revenues are likely to decline if the securities revenues decline.

Here’s the trading report on MS.

There is a high likelihood that the bank’s equity division did not improve significantly in the latest quarter given that it is rumored that the bank recently fired at least 10 people working in the equity division of its London office. JPMorgan Chase & Co. (NYSE: JPM) also reported a decline in fixed income and trading revenues in the fourth quarter and the trend is likely to be replicated across other investment banks such as Morgan Stanley.  

Almost half of Morgan Stanley’s revenues are generated from its institutional securities division, which means that the bank is likely to suffer following a major decline in equities trading revenue. Despite the dip in the banks sales, trading and fixed income-related revenues, the bank recently announced that it was promoting 153 executive directors to become managing directors this year.

Apart from the promotions, the bank also increased the bonus pool for its European investment banking division. The move cements the investment banking division’s position as one of the bank’s best-performing business divisions in Europe. However, Morgan Stanley’s U.S. wealth management division was the best performing division in the third quarter.

Morgan Stanley compares favorably to its main competitors JPMorgan and Goldman Sachs Group Inc (NYSE: GS) given that its long-term EPS is pegged at 17.1%, while GS has a LT EPS of 13.2% and JPMorgan’s LT EPS is 8.5%.

Investors who want to reduce the risk associated with investing in the financial services sector might prefer to invest in a highly diversified bank such as Bank of America Corp (NYSE: BAC). However, in order to gain full exposure to the financial services industry the Financial Select Sector SPDR Fund (NYSEARCA: XLF) is the best bet.  

Finally, it is not enough to know that a stock is likely to head higher, or lower this year. As an investor, it is important to time your entry and exit points accurately in order to minimize risk and maximize your profit potential.

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