By Arasu Kannagi Basil
(Reuters) – Morgan Stanley’s earnings beat estimates in the third quarter as a surge in deals drove revenue to record levels, and the company’s finance chief said its investment banking portfolio is at “all-time highs.”
“It’s certainly possible that next year we could break 2021 deal volume records,” Chief Financial Officer Sharon Yeshaya told Reuters in a phone interview on Wednesday. The IPO pipeline, in particular, is showing a lot of activity coming from financial sponsors, he added.
Morgan Stanley’s third-quarter earnings beat market expectations with record revenue, led by a 44% increase in investment banking revenue and strong growth in equity trading.
The wealth management business reached $8.9 trillion in assets under management, closer to the long-standing target of $10 trillion, and achieved a pre-tax margin of 30.3%.
A series of big deals pushed global M&A activity past the $3 trillion mark this year. A resilient U.S. economy, optimism over interest rate cuts and lighter regulations under the Trump administration have spurred companies to strike deals or tap capital markets.
“We had very strong results in investment banking and are again number one in the equities business, an area in which we have been investing.” Yeshaya added that the bank is seeing better macroeconomic conditions.
“We have higher expectations now for GDP than when we were at the end of the second quarter,” the CFO said, adding that companies are seeing lower debt costs. Markets are hovering at record highs and the US Federal Reserve resumed its rate-cutting cycle in September.
STOCKS SOAR
Morgan Stanley shares rose 4.1% in premarket trading on Wednesday. They have gained 23.6% this year based on the latest closing price.
“This is a great quarter for MS with improvements across the board, and we expect the reaction to be supportive,” Citigroup analyst Keith Horowitz wrote in a note.
“A strong wealth management business can support continued activity in the investment banking channel,” said Christopher Marinac, director of research at Janney Montgomery Scott, citing Morgan Stanley’s high margins in wealth management.
The bank’s earnings rose to $4.6 billion, or $2.80 per share, for the three months ended Sept. 30, beating expectations of $2.10 per share, according to estimates compiled by LSEG. Total quarterly revenue hit a record $18.2 billion, beating expectations of $16.7 billion.
BOOST TO NEGOTIATIONS
Morgan Stanley’s investment banking revenue rose 44% to $2.11 billion from a year earlier. The bank landed key roles in major deals, including advising freight rail giant Union Pacific on its $85 billion acquisition of smaller rival Norfolk Southern, the largest transaction announced globally this year.