New York — Morgan Stanley rounded out a winning week for Wall Street trading desks with its own success story: Revenue from the business surged 22% in the third quarter, lifting the firm’s profit to the second-highest ever.

The trading division topped analysts’ estimates, driven by a 35% jump in fixed-income revenue that was second-best among the big banks. The gains echoed similar results from JPMorgan Chase, Goldman Sachs and Citigroup, which also benefited from continued swings in markets driven by the pandemic.

“We delivered strong quarterly earnings as markets remained active through the summer months,” Morgan Stanley CEO James Gorman said in a statement on Thursday.

The gains brought the trading total for the five biggest US investment banks to $23.3bn, a windfall that helped them counteract credit losses and other negative affects of the pandemic. Gorman has also taken the opportunity to go on a bit of a shopping spree, unveiling two of the industry’s biggest takeovers since the financial crisis: the $13bn purchase of E*Trade Financial and a $7.8bn deal to buy asset manager Eaton Vance.

The third quarter also continued to highlight the stark contrast between how the largest US banks are seeing big gains in their capital-markets businesses even as the broader economy struggles to recover. Firms such as  Morgan Stanley, with little exposure to consumer credit woes, have fared best.

The company’s shares have fallen less than 1% since the start of the year, the best performance among the top six banks. They advanced 0.2% to $50.76 in New York.

Net income rose 25% to $2.72bn. Earnings per share were $1.66, or $1.59 excluding a tax benefit. Analysts had expected profit of $1.28 per share.

Fixed-income trading revenue at Morgan Stanley was $1.92bn, compared with the $1.7bn analysts were predicting, based on estimates compiled by Bloomberg. Equities-trading revenue rose to $2.26bn, surpassing the $2.2bn average estimate.

Equity-underwriting fees more than doubled from a year earlier to $874m, helping to counter declines in advisory and fixed-income underwriting.

The equity-capital markets business “has been extraordinarily strong”, CFO Jonathan Pruzan said in an interview. “It is one of our marquee franchises and it was really driven by the IPO market,” Pruzan said, adding that pipeline remains “very healthy”.

The gains boosted equities trading as well as the bank regaining its standing as  the leader  in that business through the three-month period.

Morgan Stanley’s investment bankers posted revenue of $1.71bn, beating the $1.6bn analyst estimate. The bank had a key role on the direct listing of secretive big-data firm Palantir Technologies — a process that was beset by some opening-day technical hiccups. Equity underwriting more than doubled from a year earlier.

Pruzan said Morgan Stanley clients have been expressing concern that the November US election could lead to more volatility than usual, citing predictions that the winner might not be decided in a timely manner.

“In a typical election season, you would see volatility increasing into the election and then subsiding,” Pruzan said. “If you look at some of the metrics, expectation is for volatility to persist through the election. There’s an emerging view that the election will not be as clear as has historically been the case.”

Money management

Wealth-management revenue climbed 7% to $4.66bn, while investment management brought in $1.06bn. The two divisions are becoming even more important for revenue, as assets swell with the firm’s new purchases.

E*Trade’s roughly $700m in quarterly revenue was not  included in Morgan Stanley’s results because the deal was completed at the start of the fourth quarter. The Eaton Vance acquisition is expected to wrap up in the middle of 2021.

The new Morgan Stanley will rely on its beefed-up wealth- and money-management businesses for a majority of its revenue, while also trying to maintain its standing in the markets and deal making world.


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