Morgan Stanley’s Revenue Growth Rate Will Be Notably Lower Over Coming Years

by Trefis Team
Morgan Stanley
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Morgan Stanley (NYSE: MS) is a global financial services firm which mainly deals in four business segments: advisory & underwriting services (investment banking), sales & trading, investment management and wealth management. Its end users include corporates, governments, institutional investors (such as pension funds, mutual funds and hedge funds) and high net-worth individuals (HNIs). Morgan faces stiff challenges and competition from offerings by its competitors like: JPMorgan, Goldman Sachs, Wells Fargo, Citigroup and Bank of America.

Trefis details the key components of Morgan Stanley’s Revenues in an interactive dashboard, along with our forecast for the next three years. In 2019, Morgan Stanley’s Institutional Securities division is expected to contribute roughly $19.3 billion (48%) to its Total Revenue estimate of $40 billion, which is 4% less than the 2018 figure of $20.1 billion. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for revenues. Additionally, you can see more Trefis data for financial companies here.

What to expect from Morgan Stanley’s Revenues?

  • Total revenues have increased at an average annual rate of 8% over the last three years, from $34.6 billion in 2016 to $40.1 billion in 2018. However, it is expected to report a marginal decrease in 2019.
  • Thereafter, total revenues are expected to grow at an average annual rate of 2% over the next three years.
  • Morgan Stanley’s revenues are expected to increase from $40.1 billion in 2018 to $41.8 billion by 2021, mainly driven by growth in Wealth Management division.

[A] Institutional Securities Revenues are expected to drop 4% in 2019.

Although revenues for this segment have grown 17% over the last three years (from $17.6 billion in 2016 to $20.1 billion in 2018), we expect it to decrease 4% in 2019 to $19.3 billion. This would be caused by 10% decline in equity underwriting & debt origination revenues coupled with a 4% drop in equities trading. Thereafter, it is expected to grow at an average annual rate of 3% and cross $20.3 billion by 2021.

This segment could be divided into five sub-divisions:

  • Equity Trading: acts as a market maker in equities and equity-related products, structures & derivatives. It is expected to drop by 4% in 2019, mainly driven by 148 bps decrease in equities trading yield.
  • FICC Trading: makes markets in and trades interest rate products, mortgage-related securities, loan products, currencies, commodities etc. This unit won’t see much change in its 2019 revenues, which is expected to be around $5 billion.
  • Equity Underwriting & Debt Origination: offers equity & debt underwriting services, which includes public offerings and private placements. Equity underwriting revenues are expected to decrease 12% from $1.7 billion in 2018 to $1.5 billion in 2019, followed by an 8% drop in debt origination revenues.
  • M&A Advisory: provides advisory services in Mergers & Acquisitions (M&A) and financial restructuring. This segment is likely to witness a 6% reduction, from $2.4 billion in 2018 to $2.3 billion in 2019, due to the weak IPO activity so far this year.
  • Principal Investments & Other: includes returns and overrides on corporate & real estate investments made by bank-managed merchant banking funds. While this unit has a negligible impact on segment revenues, we expect it the revenues to be around $100 million in 2019.
  • Overall, this unexpected decline could be attributed to negative market conditions and lower consumer activity in the current year.

[B] Investment Management Revenues are expected to cross $3 billion by 2021.

  • This division provides retail investors with a full range of mutual fund and alternative investment products, and institutional clients with a fully-integrated asset management offering.
  • The segment revenues have grown 30% from $2.1 billion in 2016 to $2.7 billion in 2018.

 [C] Although Wealth Management revenues have grown 12% – from $15.3 billion in 2016 to $17.2 billion in 2018, we expect the growth to slow down in coming years.

  • This segment provides financial services (like brokerage, investment advisory, financial planning, insurance, securities-based loans etc.) to wealthy individuals as well as small- to medium-sized businesses and institutions.
  • We expect the segment’s growth rate to reduce to 2% over the next three years.

Our interactive dashboard for Morgan Stanley details what is driving changes in revenues of Morgan Stanley’s Investment Management and Wealth Management segments.

Trefis estimates Morgan Stanley’s stock (shows cash and valuation analysis) to have a fair value of $54, which is roughly 30% higher than the current market price.

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