Investment bank Morgan Stanley (NYSE: MS) is the next big bank to report 4th quarter earnings, Tuesday
before the markets open. Some analysts expect a healthy rise in per-share profit, partly as a result of the post-presidential
election trading environment.
Known on the street as an old-school traditional investment bank, MS may stand to benefit from the so-called “Trump effect” that
may usher in a looser regulatory and tax environment. Also, President-elect Donald Trump’s calls for more fiscal stimulus, for
example, also has helped steepen the yield curve, which typically bodes well for banks like MS because of the higher spread between
borrowing and lending rates.
But those are long-term prospects that may or may not come to fruition this year. The Q4 results are likely to represent the
company’s bread-and-butter units such as trading in fixed income, currencies and commodities (FICC) products, as well as its wealth
management services and products.
In January, Reuters reported that MS has laid off a number of senior investment bankers and cut 15% out of bonuses to others in
response to revenue pullbacks in its investment-banking businesses. That came after the Jan. 1 start date of new pay packages that
were reconfigured with new incentives aimed at drumming up bigger revenues. All of this appears to be part of MS’s much-publicized
effort to chop $1 billion from its budgets—a big chunk of which is tied to salaries.
MS spokespeople said more information on compensation and workforce changes are expected to be shared on Tuesday’s conference
call, according to published reports.
Some analysts also note they will be listening to what, if anything, executives may have to say about their outlooks for
business in China. MS reportedly is planning to up its stake later this year to 49% with its joint-venture partners in China, in “a
sign of good faith to the Chinese government,” and belief that the government “will open up over time and offer opportunities,”
according to the Wall Street Journal. (Foreign banks with operations in China must have JVs with Chinese brokerages that can
advise on mergers and acquisitions, and initial public offerings. However, they don’t have licenses to trade securities, according
to media reports. The 49% threshold is the highest China allows.)
Analysts reporting to Thomson Reuters Corp (NYSE: TRI) are expecting per-share profit to rise 51% to $0.65 from $0.43 a year ago.
Revenue is anticipated to reach $8.5 billion, up 7.5% from last year’s $7.9 billion. MS has beaten Wall Street’s expectations in 13
of the last 15 quarters.
Short-term options traders have priced in a potential share price move of just over 3% in either direction around the earnings
release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.
Call option activity has been heaviest at the 44-strike, while put activity has concentrated at the 42-strike. The implied
volatility sits at the relatively low 23rd percentile. (Please remember past performance is no guarantee of future results.)
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over
a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined
price over a set period of time.
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