Analyst Note| Michael Wong, CFA, CPA |
Morgan Stanley had strong revenue and earnings in the first quarter, despite hundreds of millions of dollars in losses related to Archegos Capital. Morgan Stanley reported net income to common shareholders of $4 billion, or $2.19 per diluted share, on a record $15.7 billion of net revenue. Pre-provision net revenue increased 61% from the previous year and 16% from the previous quarter. While part of the increase from the previous year is due to Morgan Stanley’s acquisition of online brokerage E-Trade that closed in October 2020 and asset manager Eaton Vance that closed in March 2021, most is due to the exceptional performance in the company’s institutional securities business. The company was able to report these strong results and had an annualized return on tangible equity of 21.1%, despite booking $911 million of losses related to Archegos Capital. We don’t anticipate making a material change to our $70 fair value estimate for narrow-moat Morgan Stanley and assess shares as fairly valued.