April 16, 2024 – 6:44 AM PDT
(Reuters) – Morgan Stanley’s (MS.N) first-quarter profit beat estimates on Tuesday, fueled by a resurgence in investment banking and growth in wealth management, sending shares up 1.8%.
Investment banking revenue climbed 16% from a year earlier. Fixed-income underwriting did well for a second quarter in row, driven by higher bond issuance. The Wall Street giant’s wealth and investment management divisions also benefited from surging client assets.
“It was an excellent quarter all around,” Chris Kotowski, an analyst at Oppenheimer, wrote in a note. The bank achieved a “near-perfect print” like rival Goldman Sachs did on Monday, Kotowski added.
Morgan Stanley reported profit of $2.02 per share, sailing past analysts’ average estimate of $1.66, according to LSEG data. Total revenue rose to $15.14 billion compared with $14.5 billion a year earlier.
The growth in investment banking revenue was smaller than competitors’. That was based on advisory revenues for mergers and acquisitions (M&A) that depend on regulatory approval, Chief Financial Officer Sharon Yeshaya said.
Surging equity markets and high-profile initial public offerings (IPOs) may fuel more activity, the CFO said.
“The IPOs that have come to market have done well, and that is positive, it helps the advisory business,” she said. “It helps financial sponsors to come to the market with assets they may be looking to dispose,” Yeshaya said, referring to private equity investors.
Investment banking activity has rebounded from a two-year dealmaking drought as large corporations issued near-record levels of debt and equity capital markets became more active.
“We saw building momentum in investment banking, both in our M&A and underwriting pipelines across corporate and financial sponsor clients,” CEO Ted Pick told investors on Tuesday.
Goldman Sachs (GS.N) impressed markets on Monday with a 28% rise in profit due to more fees in leading large deals and also good results in trading. In their earnings last week, JPMorgan Chase (JPM.N), and Citigroup (C.N) cited rising activity, particularly in debt and equity capital markets.
Total revenue for Morgan Stanley’s institutional securities division, which houses investment banking, equities and fixed income, climbed to $7 billion from $6.8 billion a year earlier. Fixed income trading revenue slid 4%, while equities rose 4%.
WEALTH INFLOWS
Morgan Stanley has built its wealth business into a powerhouse that generates more stable revenue and helps smooth out revenue from more volatile businesses such as trading and investment banking.
“We have strong backlogs and momentum in every part of the firm,” CEO Pick said after his first quarter at the helm. “While the pipelines are healthy, there remains a backdrop of economic and geopolitical uncertainty.”
New assets climbed to $95 billion, with around half of those coming from family offices. Wealth management revenue rose to $6.9 billion from $6.6 billion a year ago.
The unit is also reportedly facing higher regulatory scrutiny, with multiple U.S. regulators probing whether Morgan Stanley is vetting its clients and knows the origin of their wealth. The Wall Street Journal reported the probes earlier this month.
Investment management revenue rose to $1.4 billion from $1.3 billion a year ago.
The bank’s asset management unit is aiming to double its private credit portfolio to $50 billion in the medium term, Reuters reported in January, as it gathers funds from large investors to loan out to companies.
Morgan Stanley also said it will pay an additional fees of $42 million to the U.S. Federal Deposit Insurance Corporation to fill its insurance fund that was drained last year when three regional lenders collapsed.
Reporting by Tatiana Bautzer in New York and Manya Saini in Bengaluru; Editing by Lananh Nguyen, Arun Koyyur and Nick Zieminski