Written by Tatiana Bautzer and Manya Saini
(Reuters) – Morgan Stanley’s first-quarter profit beat expectations on Tuesday, boosted by a revival in its investment banking business and growth in its wealth management sector, sending its stock up 3.7%.
Investment banking revenue increased 16% compared to the same period last year. Bond underwriting business was strong for the second consecutive quarter due to increased bond issuance. The Wall Street giant’s wealth and investment management divisions also benefited from the surge in client assets.
“Overall it was a great quarter,” Oppenheimer analyst Chris Kotowski wrote in a note. Kotowski added that the bank achieved a “nearly perfect performance” similar to what rival Goldman Sachs achieved on Monday.
Morgan Stanley reported earnings of $2.02 per share, beating analysts’ average estimate of $1.66, according to LSEG data. Total revenue increased to $15.14 billion from $14.5 billion in the same period last year.
Chief Executive Officer Ted Pick told investors on Tuesday: “We are seeing increased momentum in our investment banking business, both in our M&A and in our underwriting pipeline across our corporate and financial sponsor clients. We did it,” he told investors. He expects a “multi-year M&A cycle” to begin now and last three to five years.
He said geopolitical risks could even create incentives for more deals, with some companies leaving overseas locations in part because two major conflicts have disrupted supply chains. He added that it would likely be necessary to relocate.
“The fact that the U.S. economy continues to grow, China is weakening, parts of Europe are weakening makes people want to increase their exposure to the U.S. even more,” the CEO told investors. “It highlights the fact that I think so.” He also cited the need for financial sponsors to make deals, sell private companies and return capital to investors.
CFO Sharon Yeshaya told Reuters in an interview that a surging stock market and high-profile initial public offerings (IPOs) were also contributing to the uptick in activity.
“The IPOs that came to market did well, which is positive and good for the advisory business,” he said.
Goldman Sachs shocked the market on Monday with a 28% profit increase due to higher commissions on its flagship large trades and strong trading performance. JPMorgan Chase & Co. and Citigroup cited increased activity in debt and equity capital markets, among other things, in their earnings results last week.
Total revenue for Morgan Stanley’s institutional securities division, which covers investment banking, equities and fixed income, rose to $7.0 billion from $6.8 billion in the same period last year. Fixed income trading revenue fell 4%, but stocks rose 4%.
Survey of wealthy customers
Morgan Stanley has helped build its wealth business into a stronger company with more stable returns, smoothing out returns from more volatile businesses such as trading and investment banking.
“We have a strong backlog and momentum across all parts of our company,” CEO Pick said after his first quarter. “The pipeline is healthy, but against a backdrop of economic and geopolitical uncertainty.”
New assets rose to $95 billion, about half of which came from family offices. Wealth management revenue increased to $6.9 billion from $6.6 billion in the year-ago period.
The division is also facing increased regulatory scrutiny as multiple U.S. regulators investigate whether Morgan Stanley vets its customers and understands the source of their wealth. It is reported that there are. Pick said on an investor call that customer onboarding is “not a new problem,” in an indirect reference to the study. “We have long been focused on customer onboarding and monitoring the process. Like all large banks, we are in continuous communication with regulators.”
Chief Financial Officer Sharon Yeshaya, responding to direct questions from analysts, said the study did not result in any strategic changes in the wealth business and that the international component of wealth management is small.
Investment management revenue increased to $1.4 billion from $1.3 billion a year ago.
Reuters reported in January that the bank’s asset management arm is raising money from large investors to lend to companies and aims to double its private credit portfolio to $50 billion over the medium term. It is said that there is
(Reporting by Tatiana Bautzer in New York and Manya Saini in Bangalore; Editing by Ranan Nguyen, Arun Koyul and Nick Zieminski)
