Morgan Stanley investment banking beats estimates as fee revenue jumps 44%

Morgan Stanley bankers cashed in on the past quarter’s hectic period for deal making, helping the firm post its second-most profitable quarter on record and weather a steep decline in trading.

Investment banking hauled in $2.38bn in revenue, according to a statement on Thursday, vaulting analysts’ estimates of $2.08bn. Shares fell as fixed-income trading revenue tumbled 45% from 2020’s pandemic-driven surge.

Morgan Stanley’s results echo an investment-banking bonanza reported by rivals including JPMorgan Chase and Goldman Sachs Group earlier this week. The firms capitalised as corporations looking for merger and acquisition (M&A) opportunities sought out advice from Wall Street. Investment banking has been a wild card for Morgan Stanley’s earnings, a contrast to the steady growth engine of the firm’s wealth-management operation.

“We had another strong quarter and we are firing on all cylinders,” CFO Sharon Yeshaya said in an interview. “The fixed-income decline was in line with peers, investment-banking pipelines are strong. We had record revenue in wealth management” and a profit margin of almost 28%.

Morgan Stanley was little changed at $92.38 before midday in New York trading. The stock has surged 35% in 2021 as the bank doubled its quarterly dividend and announced as much as $12bn in stock buybacks after comfortably clearing the Federal Reserve’s annual stress tests.

CEO James Gorman unveiled his biggest leadership shake-up in more than a decade during the second quarter, positioning four men as his most likely successors. Prominent among them were Ted Pick, the architect of Morgan Stanley’s trading revival in recent years, and Andy Saperstein, who built the company into a wealth-management powerhouse. Pick and Saperstein were tapped as co-presidents.

The company said net income in the second quarter reached $3.48bn, the second-best on record, after the $4bn notched in the first quarter. 

Within the investment-banking division, advisory-fee revenue jumped 44% and equity underwriting climbed 22% to $1.07bn.

Several banks have raced to announce pay hikes for junior bankers to prevent defections and attract talent. But Morgan Stanley and Goldman Sachs have so far steered clear of extending such perks to their youngest hires.

Trading revenue industrywide has fallen from the elevated levels seen in 2020, and Morgan Stanley didn’t escape that fate. Its trading desk posted $1.68bn in fixed-income revenue, down from $3.04bn a year earlier and below the $1.91bn analysts were expecting. 

But the New York-based firm regained its top position in equity trading after ceding the crown to Goldman Sachs in the first quarter, when Morgan Stanley got burnt by its ties to Archegos Capital Management.

 Wealth management churned out $6.09bn in revenue. Gorman has been vocal about his goal of managing about $10-trillion across the wealth and asset-management business, compared with $6-trillion the firm managed at the end of June. Results were bolstered by a $10bn increase in lending to wealthy clients and $34bn in fee-based inflows for the three-month period.

Morgan Stanley is turning to the business of managing money for wealthy individuals and clients for an increasing share of its total revenue, a trend highlighted by 2020’s deals to purchase Eaton Vance and E*Trade Financial.

Bloomberg News. More stories like this are available on bloomberg.com