Unflinching Walk

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What's going on?

Morgan Stanley ended US banks’ reporting with a bang – and better-than-expected earnings – on Thursday. And no, it didn’t look back.

What does this mean?

Morgan Stanley’s fourth-quarter revenue was 27% higher than the same time last year, and the company’s profit rose 46%. That wasn’t just higher than investors had expected: it also capped off a record year for the bank.

As keen Finimizers might’ve expected, Morgan Stanley’s bond trading revenue rose in lockstep with the likes of Goldman Sachs, and the company’s wealth management segment – i.e. investing rich people’s money, which represents almost half the firm’s earnings – beat estimates too. But the star of the show was asset management, where quarterly revenue doubled versus a year ago.

Why should I care?

For markets: Frictionless markets.

Morgan Stanley’s stock rose 6% on Thursday, probably thanks to those strong results and the increased profit margin it’s forecasting for its investment management businesses. The bank played a part, then, in pushing the US stock market to yet another record high on Thursday (tweet this). With lots of stockbrokers eliminating trade commissions late last year, there’s less than ever stopping retail investors from taking part in the ongoing stock market rally. Maybe that’s why investors in Charles Schwab shrugged off the broker’s worse-than-expected quarterly update: its plan to take over rival TD Ameritrade could make it a go-to for investors everywhere.

Zooming in: The best of both worlds.

Morgan Stanley’s currently poised between risky investment banking activities (like trading) and more stable businesses (like investment management). And by raising its profit margin forecasts for the latter segment, the bank might become a more attractive proposition still. Morgan Stanley will continue to benefit from trading windfalls as it did last quarter, but when that business slows (as it tends to), its predictable and highly profitable segments will keep earnings from falling too far.

Originally posted as part of the Finimize daily email.

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