Morgan Stanley (MS) became the latest major bank to report third quarter earnings, joining its peers in exceeding Wall Street expectations earlier this week. The financial giant posted impressive results, with net profits surging 32% compared to the same period last year.
Bloomberg Intelligence director of research Alison Williams analyzes the bank’s performance on Morning Brief.
Williams highlights that Morgan Stanley “executed in a very strong environment,” noting a significant rebound in wealth management flows. After a relatively weak second quarter, these flows reached $64 billion in Q3, which she says “really exemplifies the health of the business.”
A particular bright spot for the bank was its equity trading division. While all global investment banks showed strength in this area during the quarter, Williams emphasized that Morgan Stanley was “the standout.”
She also discusses the bank’s significant transformation under former CEO James Gorman’s leadership: “Of all the banks, Morgan Stanley has been the one that had the biggest change in its model over the last decade or so, and that was really through a series of acquisitions under Gorman. Gorman did set out a series of very aggressive targets for the business that Ted Pick is now taking over and having to deliver on, but certainly in this quarter he is delivering it.”
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
This post was written by Angel Smith
Let’s turn to big bank earnings.
They’re rolling in today.
Morgan Stanley reporting better than expected results boosted by wealth management trading and investment banking, profit jumping 32% from a year ago as deal making rebounds.
This following similar stories from Bank of America from Goldman Sachs and City earlier this week.
Joining us.
Now, we want to bring in Allison Williams, Director of research for Bloomberg Intelligences Global Strategy team, Alison, it’s great to have you here on the program with us.
So the CFO at Morgan Stanley characterized this quarter as a standout quarter to him uh to her, what how would you characterize this quarter?
So I would characterize it as Morgan Stanley uh executing on a very strong environment.
So the most important number we saw this quarter was the wealth flow number.
So 64 billion uh rebounding from a weak or second quarter.
And that really exemplifies the health of the business.
So, um you know, it’s the markets help the assets under management, help the fees and that’s more meaningful for the top one in any given quarter.
But the wealth flows really show, you know, demand for assets and demand for new business at Morgan Stanley asset management also gather flows on the alternatives of fixed income side.
And then of course, uh Morgan Stanley’s trading does lean more towards equity trading.
That was the biggest source of strength that we saw at, at all the global investment banks this quarter.
Um We saw upside at all the banks, equity trading f trading, uh debt fees, M and A fees, e equity underwriting fees a little bit mixed.
Um But within all of that upside really, um the equities trading, uh the standout and Morgan Stanley doing very well.
You know, it’s interesting, Alison, some of the things that we had heard that seem to be a common denominator about the strategy for all of these businesses over the quarter.
And what we heard on conference calls was diversification of their revenue and, and where they’re generating that from who is doing the best from your perspective in that diversification of revenues that investors can really hang their hat on and, and see continued growth as they’re looking across where those sources of driving even more sales or revenue are coming from.
So, you know, Morgan Stanley and Goldman Sachs are the more focused banks in terms of focusing on the institutional business.
Whereas companies such as JP Morgan Bank of America Citi um and Wells Fargo are a little bit more diversified, wells leaning more towards the regional banking business.
You know, JP Morgan, really the leader in returns on tangible equity diversified and winning across the platforms.
But Bank of America also sort of similar in that footprint.
I would say that Citigroup is, is instead of diversifying, is narrowing its business.
And we think that’s a good thing because they’re getting rid of the marginal, less profitable businesses and looking to focus on something like uh wealth management, which is a business that they, you know, basically sold to Morgan Stanley in a series of steps, Goldman Sachs.
Also I would say is the opposite of diversification and they’re narrowing their footprint.
And I think that’s helping them focus on their core business.
So of all the banks, Morgan Stanley has been the one that had the biggest change in its model over the last decade or so.
And that was really through a series of acquisitions under Gorman.
Gorman did set out a series of very aggressive targets for the business um that uh Ted pick is now taking over and having to deliver on, but certainly in this quarter, he he is delivering it and the and the shift really is towards wealth management where there was upside in the quarter.
And again, the flows are important, but the institutional business has really been the stand out and drove uh the top line.
Surprise Nelson, looking ahead here, Ted pick also calling out the evolving interest rate environment, a potential tail wind here for the bank over here.
From your perspective, how big of a catalyst.
Do you see this three year end?
And then of course, looking ahead to 2025.
So what one of the big stories uh that the banks have been talking about and investors are focusing on is that investment banking fee recovery?
So in 2021 we really just saw a blowout year hitting on all cylinders for M and a equity underwriting debt underwriting, you know, since that, you know, obviously things the following year and just has not really recovered.
I would say that in 2024 you know, debt fees have really been very strong, but equity fees and M and A fees are really just recovering.
And I think that is what Morgan Stanley is focusing on, you know, could we be at the beginning of a multiyear recovery?
Some of the work done by our team supports this M and A um is that, you know, is we expect could go from a low of measured as a percentage of the market capitalization of the world, um more towards the higher end of that.
And we do think that the IP O market also shows signs of recovery.
Um One last thing I’ll leave you with is, you know, Goldman Sachs, who is the leader in M and A revenue, I did see an increase in their backlog.
And so we do expect, um that’s a source of fees that will be strong in the fourth quarter, Allison Williams, director of research for Bloomberg Intelligence’s global strategy team.
Alison.
Thanks so much for taking the time here with us this morning.
Thanks for having me.