Morgan Stanley’s Q2 profit exceeded expectations due to a surge in investment banking and trading revenues, despite muted wealth management.
The bank, like Bank of America and JPMorgan, reported higher investment banking revenue due to increased U.S. economic confidence.
Morgan Stanley shares rose 2% as CEO Ted Pick expressed confidence in dealmaking and achieving a 30% pre-tax wealth margin.
Institutional securities revenue surged 23% to $7 billion, driven by a 51% jump in investment banking revenue to $1.62 billion.
“We’re in the early stages of a multi-year investment banking-led cycle,” Pick told analysts during a conference call.
Chief Financial Officer Sharon Yeshaya affirmed, “Pipelines are healthy and diverse, dialogues are active, and markets remain open.”
Equity underwriting revenue jumped 56% to $352 million due to IPOs, while fixed income underwriting surged 71% to $675 million.
Advisory sales increased by 30% to $592 million as the company closed more deals.
Pick was optimistic about Morgan Stanley’s equity trading, noting revenue surpassed $3 billion, a 18% increase from last year.
The company is expanding its trading operations in Asia and the UK, citing macroeconomic and geopolitical uncertainties as client opportunity drivers.
Wealth management revenue grew 2% in Q2, down from 16% the previous year. Net new assets totaled $36.4B, a decrease from $89.5B in the previous year.
In the quarter ending June 30, net income increased to $3.1 billion ($1.82 per share) from $2.2 billion ($1.24 per share) a year ago, surpassing analysts’ average expectation of $1.65 (LSEG reported).
Morgan Stanley plans to increase its quarterly dividend to $0.925 per share, a rise of 7.5 cents, prioritizing dividend payments, Pick noted.
Analysts were largely optimistic about the outcomes, while some emphasized the slower growth in wealth.
“Morgan Stanley’s strong Q2 results were primarily driven by an industry-wide rebound in investment banking activity, while wealth and asset management remained steady contributors on the back of a robust equities market,” said Mike Taiano, senior analyst at Moody’s Ratings.
UBS analyst Brennan Hawken described earnings as contrasting: strong in institutional securities but varied in wealth management.
Impact on Morgan Stanley’s Wealth Management
Under former CEO James Gorman, Morgan Stanley’s wealth management thrived, ensuring stable revenue through fees amid market volatility.
He established a goal of managing $10 trillion in customer assets, which totaled $7.2 trillion in the second quarter.
Despite slowing net asset inflows, Morgan Stanley’s wealth unit is growing as expected, between 5% and 7% annually.
While the bank is not seeking acquisitions in the near future, Pick said it may evaluate opportunities in two to four years.
Goldman Sachs, JPMorgan Chase, and Citi also reported strong investment banking revenues.
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