(Reuters) – Morgan Stanley (MS.N) raised its performance targets on Thursday after exceeding Wall Street estimates by a wide margin, the last sign that the strategic vision of chief executive James Gorman for the bank is paying off.
FILE PHOTO: A sign is displayed in the Morgan Stanley building in New York, USA. UU., July 16, 2018. REUTERS / Lucas Jackson / File Photo
Morgan Stanley set the highest bar for expense controls, returns on equity and wealth management gains over the next two years and more, according to a presentation on its website.
Its shares skyrocketed 5.7% in pre-market commerce.
The bank now points to an efficiency rate of 70-72% over the next two years and less than 70% in the long term. That measure, which measures costs in relation to income, is closely observed by investors.
Morgan Stanley has been meeting its previous goal of 73% or less.
Keeping costs under control will help achieve another higher objective for equity returns, which measures the profitability of a bank using shareholder funds.
Morgan Stanley now aims to produce returns on equity of 13-15% until 2022, and 15-17% after that. It has been meeting the previous objective of 10-13%.
Finally, the bank now points to a profit margin before taxes of 28-30% in its wealth unit over the next two years, and 30% or more after that. You have comfortably met your previous margin objective of 26-28%.
“The” strategic update “of the company … will ultimately boost the performance of the day,” KBW analyst Brian Kleinhanzl said in a note to customers.
Morgan Stanley announced the new goals after reporting an increase in earnings in the fourth quarter that showed that most of its businesses flourished.
Bond trading, subscription and investment management produced much higher revenues, with mergers and acquisitions being the only area that reported a significant decrease.
Analysts have been asking Gorman when he would update his previous goals for some time, since the bank regularly met them.
For the whole year, its efficiency index was 73%, its return on capital was 11.7% and its wealth business generated a pre-tax margin of 27.2%.
For the fourth quarter, Morgan Stanley’s earnings increased 46%, to $ 2.09 billion, or $ 1.30 per share, from $ 1.36 billion, or 80 cents per share, a year ago. (reut.rs/37b9508)
Analysts expected a profit of 99 cents per share, according to data from the Refinitiv IBES.
The bank’s net income increased 27% to $ 10.9 billion.
Revenue from sales and commerce increased 28% to $ 3.19 billion. Bond sales more than doubled to $ 1.27 billion, while stock trading declined slightly.
Revenue from investment banking, which includes advice on agreements and helps corporations raise money, increased 11.2%, driven by a greater subscription of bonds and shares.
Investment management revenues almost doubled to $ 1.36 billion, with a 27% increase in total net income to $ 10.86 billion.
The bank also reported $ 172 million in compensation costs after cutting its global workforce by 2%. The expense was in line with analyst expectations.
Reports of Abhishek Manikandan in Bangalore and Elizabeth Dilts in New York; Written by Lauren Tara LaCapra; Edition of Saumyadeb Chakrabarty and Nick Zieminski