Robust Trading, NII Growth to Aid Morgan Stanley's Q2 Earnings

Morgan Stanley (MS) is anticipated to report decent Q2 2025 earnings on July 16, with consensus revenue projected at $15.92 billion, a 6% year-over-year increase, and EPS at $1.93, also up 6% despite a recent 1.5% downward revision. Performance is expected to be driven by robust trading revenues, including a 14.8% rise in equity trading and an 11.5% increase in fixed-income trading, alongside a 9.8% growth in Net Interest Income to $2.27 billion. However, Investment Banking income is forecast to decline 8.1% year-over-year to $1.49 billion due to lower advisory and underwriting fees, and the Zacks model indicates a low probability of an earnings beat.

Analysis

Morgan Stanley is poised for a mixed second-quarter 2025 earnings report, with consensus estimates projecting 6% year-over-year growth in both revenue to $15.92 billion and EPS to $1.93. The primary growth drivers are expected to be the Trading and Net Interest Income (NII) divisions. Market volatility, fueled by tariff uncertainty and Fed policy, is forecast to boost equity trading revenues by 14.8% to $3.46 billion and fixed-income trading revenues by 11.5% to $2.23 billion. Concurrently, NII is projected to climb 9.8% to $2.27 billion, benefiting from stable interest rates and solid loan growth. However, these strengths are expected to be significantly counteracted by a pronounced downturn in the Investment Banking (IB) segment, with total IB income forecast to decline 8.1% to $1.49 billion. This weakness is broad-based, with advisory fees expected to fall 9.1% and total underwriting fees dropping 13.9%, the latter occurring despite a resurgent IPO market due to exceptionally difficult year-over-year comparisons. Compounding the pressure, non-interest expenses are anticipated to rise 6.6% due to franchise investments, potentially eroding margin gains. While the company has a strong history of positive earnings surprises, a recent 1.5% downward revision to the EPS consensus and a negative Earnings ESP from Zacks' quantitative model signal a low probability of an earnings beat, creating a conflicting pre-earnings narrative.

Key Decisions for Investors

• Investors should scrutinize the performance of the trading and NII divisions to confirm if their projected strength can offset the material weakness in Investment Banking and rising operating expenses.
• Given the conflict between Morgan Stanley's historical earnings beats and the quantitative model's prediction of a miss, traders should anticipate heightened volatility and pay close attention to management's forward guidance on the IB pipeline and cost controls.
• The projected 13.9% decline in underwriting fees despite a strong IPO market warrants a careful assessment of Morgan Stanley's competitive positioning and market share relative to peers like Goldman Sachs, which outperformed MS stock in the second quarter.