Morgan Stanley exceeded expectations in its first-quarter earnings report released on Tuesday, propelled by a resurgence in investment banking activities and robust growth in wealth management. The positive results led to a 3.7% increase in the bank’s shares.
Investment banking revenue surged by 16% compared to the previous year, with fixed-income underwriting performing strongly for the second consecutive quarter, driven by increased bond issuance. Additionally, Morgan Stanley’s wealth and investment management divisions saw significant gains, benefiting from a surge in client assets.
Analyst Chris Kotowski from Oppenheimer described the quarter as “excellent” and likened the bank’s performance to that of its rival, Goldman Sachs, which also reported impressive earnings the day before. Morgan Stanley reported earnings of $2.02 per share, surpassing analysts’ average estimate of $1.66, according to LSEG data. Total revenue reached $15.14 billion, compared to $14.5 billion in the previous year.
CEO Ted Pick highlighted the growing momentum in investment banking, particularly in mergers and acquisitions (M&A) and underwriting across corporate and financial sponsor clients. He anticipates a “multi-year M&A cycle” to commence and persist for 3 to 5 years, with geopolitical risks potentially driving more deal-making activity. Pick noted that companies may need to adjust their international footprint due to disruptions in global supply chains caused by ongoing conflicts.
Pick emphasized the attractiveness of the U.S. economy amidst weaker performances in China and parts of Europe, highlighting the desire for increased exposure to the U.S. market. He also cited the imperative for financial sponsors to engage in deals, divest private companies, and deliver returns to investors.
CFO Sharon Yeshaya underscored the positive impact of surging equity markets and high-profile initial public offerings (IPOs) on driving increased activity. She noted that successful IPOs have bolstered the advisory business, contributing to the overall growth of the institution.
Morgan Stanley’s institutional securities division, encompassing investment banking, equities, and fixed income, reported total revenue of $7 billion, up from $6.8 billion the previous year. While fixed income trading revenue experienced a slight decline of 4%, equities revenue rose by 4%.
The bank’s wealth management business continues to be a cornerstone of its operations, generating stable revenue and mitigating volatility from other business segments. CEO Pick expressed confidence in the firm’s strong backlogs and momentum across all areas, despite economic and geopolitical uncertainties.
However, the wealth management unit is reportedly facing increased regulatory scrutiny, with multiple U.S. regulators investigating client vetting processes and the source of client wealth. Pick assured investors that client onboarding and monitoring processes have long been a focus for the bank, with ongoing communication with regulators.
Meanwhile, the bank’s investment management revenue rose to $1.4 billion from $1.3 billion the previous year, with plans to double its private credit portfolio to $50 billion in the medium term, aiming to attract funds from large investors for corporate lending purposes.
In summary, Morgan Stanley’s first-quarter earnings reflect robust performance across its investment banking and wealth management divisions, driven by increased client activity and successful execution of strategic initiatives. While facing regulatory scrutiny, the bank remains optimistic about its future prospects and is committed to navigating economic and geopolitical challenges effectively.
