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Friday, September 17, 2021

Deals flurry and wealth unit offset trading dip at Morgan Stanley

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Morgan Stanley became the latest Wall Street bank to report that higher fees from investment banking had helped to up pick some of the slack from a slowdown in trading as it posted an increase in revenues and profits for the second quarter.

The results, which were ahead of analysts’ forecasts, underscored how Wall Street’s biggest banks have pivoted away from trading stocks and bonds towards advising on mergers and acquisitions amid a deluge of pandemic-driven deals.

Earlier this week JPMorgan Chase and Goldman Sachs also reported strong performances at their investment banking divisions as companies took advantage of cheap credit to sign a flurry of deals intended to prepare their businesses for the economic reopening.

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Chris Kotowski, a banking analyst at Oppenheimer, said: “Between Covid and the stimulus, you have set in motion forces for the average CFO, CEO and board in all industries to re-examine business models. You had great access to capital. You’ve put all kinds of M&A dialogue on table.”

Column chart of Percentage increase in the second quarter compared to a year earlier showing Wall Street shifts from trading stocks to doing deals

Morgan Stanley’s investment banking revenues for the three months to the end of June came in at $ 2.4bn, 15.8 per cent higher than a year ago and above analyst expectations of $ 2.06bn. JPMorgan and Goldman said earlier this week that second-quarter revenues at their investment banking units had jumped 25 per cent and 36 per cent, respectively, compared with the same period last year.

Shares in Morgan Stanley were up 0.7 per cent in mid-afternoon New York trading.

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However, the benefit of higher dealmaking fees on Wall Street has been offset by a drop in trading compared with this time a year ago, when the Covid-19 pandemic prompted a bout of volatility in financial markets.

Like its main Wall Street rivals, Morgan Stanley reported lower quarterly trading revenues, which fell by 20 per cent versus a year ago. Although its equities desk posted an 8 per cent increase in revenues compared with the second quarter of 2020, that was more than offset by a 45 per cent slide in trading bonds and other fixed income instruments.

Although Morgan Stanley’s investment banking gains were outpaced by Goldman and JPMorgan, its wealth management unit — which gives financial advice and makes loans to rich clients — posted a strong performance.

Column chart of Goldman and JPMorgan biggest beneficiaries of financial advisory boom showing Wall Street’s Big Three investment banking mix in Q2

Morgan Stanley said loans to rich clients grew 35 per cent year-on-year to $ 114.7bn from $ 85.2bn. Net revenues at the unit jumped from $ 4.7bn to $ 6.1bn.

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Sharon Yeshaya, Morgan Stanley’s chief financial officer, told the Financial Times that loan growth was being propelled by clients taking advantage of booming asset prices to crystallise “some of those gains” and using them to “buy other things”.

Morgan Stanley’s overall second-quarter revenue came in at $ 14.8bn, up 8 per cent from a year earlier and ahead of analysts’ estimates of $ 14bn, according to data compiled by Bloomberg. Net income was $ 3.5bn, up from $ 3.2bn a year ago.

Earnings were flattered by the recent integration of the online trading platform ETrade and the money manager Eaton Vance, which Morgan Stanley acquired last year.

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