Morgan Stanley Shares Soar Most in Four Years on Trading

(Bloomberg) -- Morgan Stanley traders and bankers joined the rest of their Wall Street rivals in posting better-than-expected revenue, fueling a 32% profit surge for the third quarter and sending the shares up the most in almost four years.

Revenue from the trading business rose 13%, the bank said in a statement Wednesday. That followed gains recorded by its biggest rivals as the markets business lifted fortunes across the industry and a rebound in dealmaking fueled higher investment-banking fees.

“There is an element of the leaders pulling away from the pack because it costs a lot to run those businesses every year,” Chief Executive Officer Ted Pick said Wednesday in an interview on Bloomberg Television, referring to the trading operations.

The firm’s critical wealth unit also stood out, generating record revenue of $7.27 billion, higher than analysts’ expectations, with $64 billion in net new assets. The unit boosted its pretax margin to 28%, driven by growth in fee-based assets.

“It was a standout quarter in a constructive environment,” Chief Financial Officer Sharon Yeshaya said in an interview. “We are only getting started and capital markets are only going to get stronger,” she said, adding: “It’s good but it’s not the peak.”

The bank’s stock soared as much as 8.2%, the biggest intraday increase since November 2020. They closed up 6.5% to $119.51, pushing this year’s gain to 28%.

CEO Pick has pitched the idea that the investment-banking business is on the cusp of a multiyear cycle that will prove to be a boon for firms like his as fees rebound. The bank has also been assuring markets that margins in its giant wealth operation are set to jump as the bank marches toward its $10 trillion firmwide asset-management goal. 

Morgan Stanley has been preparing to seize on new opportunities from a revival in dealmaking with a reshuffle of its top ranks. In July, the company tapped longtime capital-markets banker Mo Assomull as a new co-head of investment banking alongside Eli Gross and Simon Smith. It also named Evan Damast and Henrik Gobel as new leaders of the global capital-markets unit.

Morgan Stanley’s fixed-income trading business posted $2 billion in revenue, compared with estimates of $1.85 billion. That business line is the smallest among the big-five trading desks on Wall Street.

In equities, revenue totaled $3.05 billion. Equities gains have helped banks counter the slowdown in the fixed-income business, with a 27% surge at JPMorgan, and 18% at both Goldman Sachs Group Inc. and Bank of America Corp.

Yeshaya said the firm is still investing in that business. “Derivatives on the equities side is one I would point to,” she said. “There is also technology. That’s not something where you could stand still.”

Fees from advising on deals totaled $546 million, compared with estimates of $525 million. Equity-underwriting revenue was $362 million as the return of public listings and secondary offerings raised speculation those markets will fully reopen. 

Morgan Stanley now oversees $7.6 trillion in assets across its investment management and wealth unit. The bank’s shares fell behind its peers at the start of the year, when Morgan Stanley’s top management sounded a more cautious tone on its ability to meet margin targets in the near term. Investors were also turning their attention to metrics such as net interest income with the prospect of rate cuts in the months ahead. 

The firm’s results since then have countered those more measured forecasts. 

“The discussion where we were at the beginning of the year — we weren’t sure what would happen,” Yeshaya said. But she said investors would do well to look at the bank’s ability to attract fee-based assets, which will have a much bigger impact than the movement on net interest income.

The “value proposition” is in the firm’s wealth-advisory business, she said. “We have shown durable, sustainable growth and the opportunities ahead of us are extremely strong.”

Also in the results:

(Updates with closing share price in sixth paragraph.)

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