As earnings season gets underway, Morgan Stanley (NYSE: MS) shot out of the blocks on Thursday with an earnings report that will truly excite investors. Morgan Stanley’s stock price rose more than 6% following boosted guidance from CEO James Gorman.
The multinational company joined a slew of successful bank earnings this week, as JP Morgan Chase (NYSE: JPM) and Citigroup (NYSE: C) also beat expectations, while rival Wells Fargo (NYSE: WFC) missed on earnings.
How did Morgan Stanley perform?
Overall, Morgan Stanley saw an impressive profit jump of 46% to $2.09 billion, from $1.36 billion a year earlier. The company also boasted an impressive return of $1.30 per share, compared to analyst expectations of $0.99 per share.
The bank’s net revenue rose 27% to $10.9 billion, setting new records for its annual profit and revenue, as the company continues to go from strength to strength. But how exactly has Morgan Stanley managed to achieve all of this?
Why did Morgan Stanley beat expectations?
Much of the credit for Morgan Stanley’s success in the past decade comes down to the leadership of its CEO. Its 61-year-old Chief Executive, James Gorman set out a string of full-year targets last January for the company and intended to meet every one of them. And he did.
Since taking over more than a decade ago, Gorman has completely turned Morgan Stanley around. What was once a Wall Street firm heavily laden with money-losing trades and poor business decisions is now a well-rounded and business-savvy powerhouse. In the 10 years since his appointment, Gorman has brought Morgan Stanley to a level where it can compete with some of the biggest names in finance such as Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC).
During his tenure, Morgan Stanley’s stock is up nearly 80%, and reportedly generates roughly three times the amount of daily revenue than it did five years ago.
The company began managing costs, especially in regards to expansion, making the decision not to open up retail branches nationwide. Much was also invested in wealth management, the company’s second-largest division, with a renewed focus on the technology sector, which enjoyed a tremendous decade on Wall Street. As well as this, the company branched into an Asian private equity fund which proved quite fruitful.
What does the future hold for Gorman and Morgan Stanley
Gorman arrived at a time where the world was reeling from economic collapse, and his clean-up skills proved invaluable to the firm. Now, having consistently met targets, Gorman is set on beating them completely.
In a statement during the earnings call, Gorman said: “What I’ve always tried to do with these targets is set a range where the bottom of the range is what we should be able to deliver in all normal circumstances. The top of the range is obviously a little more sporty.”
Gorman is determined to get costs under control, judging by his metric plans, one of which includes generating returns on equity of 13-15% through 2022 and 15-17% after that, having posted 11.7% last year. Elsewhere, Gorman is looking to hit an efficiency ratio of less than 70%, while generating a pre-tax profit margin of more than 30% in the next 2 years and beyond.
These lofty ambitions show that Gorman means business with Morgan Stanley, and it seems that the company is certainly in the right hands.
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