Morgan Stanley shares hit biggest gain in four years

(Bloomberg) — Traders and bankers at Morgan Stanley joined other Wall Street rivals in reporting better-than-expected revenue, sending third-quarter profits soaring 32% and sending shares to their biggest gain in nearly four years.

Trading revenue rose 13%, the bank said in a statement on Wednesday. The gains come after its biggest rivals posted gains as markets business boosted wealth across the industry and a rebound in trading drove up investment banking fees.

“There’s an element for leaders to be disconnected because of the high cost of running these businesses every year,” Chief Executive Ted Peake said of the trading business in an interview with Bloomberg Television on Wednesday.

The company’s Key Wealth segment also performed well, generating record revenue of $7.27 billion, above analysts’ expectations, and net new assets of $64 billion. The segment’s pre-tax margin improved to 28%, driven by growth in fee-based assets.

“This was a great quarter in a constructive environment,” Chief Financial Officer Sharon Yeshaya said in an interview. “We’re just getting started and the capital markets are only going to get stronger,” she added. “That’s good , but not yet the peak.”

The bank’s shares soared as much as 8.2%, their biggest intraday gain since November 2020. The stock was up 7.2% at $120.35 as of 11:37 a.m., pushing this year’s gains to 29%.

CEO Peake floated the idea that investment banking is on the cusp of a multi-year cycle, which would be a boon to firms like his as fees rebound. The bank has also been assuring markets that margins at its vast wealth business will rise sharply as it moves toward its $10 trillion company-wide asset management target.

Morgan Stanley has been preparing to seize new opportunities arising from the trading recovery by reorganizing its top staff. In July, the firm hired longtime capital markets banker Mo Assomull as its new co-head of investment banking, along with Eli Gross and Simon Smith. It also named Evan Damast and Henrik Gobel as new leaders of its global capital markets unit.

Revenue from Morgan Stanley’s fixed income trading business was $2 billion, compared with expectations of $1.85 billion. The business line is the smallest of Wall Street’s Big Five trading desks.

On the equity side, revenue totaled $3.05 billion. Rising stocks helped banks cope with a slowdown in fixed income, with JPMorgan Chase & Co. rising 27% and Goldman Sachs Group Inc. and Bank of America Corp. rising 18%.

Yeshaya said the company is still investing in the business. “I would mention derivatives on the equity side,” she said. “And the technology. It’s not something you can sit back and wait for.”

Transaction advisory fees totaled $546 million, compared with estimates of $525 million. Equity underwriting revenue was $362 million as the return of public listings and secondary offerings fueled speculation that these markets will fully reopen.

Morgan Stanley currently manages $7.6 trillion in assets across its investment management and wealth divisions. The bank’s shares lagged peers earlier this year when Morgan Stanley’s top management struck a more cautious tone about its ability to hit margin targets in the near term. Investors are also turning their attention to metrics such as net interest income and anticipating possible interest rate cuts in the coming months.

The company’s results have since defied those more cautious forecasts.

“The discussions we had at the beginning of the year – we weren’t sure what was going to happen,” Yeshaya said. But she said investors would be better off focusing on the bank’s ability to attract fee-bearing assets, which would have a bigger impact than changes in net interest income.

The “value proposition” lies in the company’s wealth advisory business, she said. “We have demonstrated sustained, sustainable growth and the opportunity before us is very strong.”

(Updates stock price in sixth paragraph.)

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