Morgan Stanley chief says ‘existential’ need for M&A will revive investment banking

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Morgan Stanley’s chief executive Ted Pick argued dealmaking was an “existential reality” for companies that would help usher in Wall Street’s long-awaited recovery in investment banking, as first-quarter profits at the bank rose 14 per cent.

The bank reported net income of $3.4bn in the first three months of the year, up from $3bn a year earlier and comfortably ahead of analysts’ estimates compiled by Bloomberg of $2.7bn. 

Investment banking fees were a bright spot, increasing by a higher than expected 16 per cent as the markets for initial public offerings started to reopen after a two-year downturn.

Morgan Stanley’s recovery in investment banking was less pronounced than at many of its rivals — fees at Goldman Sachs were up 32 per cent — but Pick presented a bullish outlook.

“I’m feeling good about this being early-to-mid cycle for the classic investment banking, capital markets business around the world,” said Pick, who took over from longtime chief James Gorman in January.

Pick pointed to pressure on private equity firms to sell existing assets and deploy new funds and big companies’ need to overhaul supply chains as drivers for more investment banking activity.

“The need to execute on cross-border M&A is here. It’s for many companies an existential reality. Their supply chains have been disrupted by two major global conflicts,” Pick said.

Revenues from equities trading, which analysts had expected to decline, were instead up 4 per cent at $2.8bn, though revenues from fixed income trading fell 4 per cent. 

Line chart of Trading revenues in $bn showing Fixed income and equity traders at US banks shine in the first quarter

The quarter was the first under Pick, whose background in investment banking and trading contrasts with predecessor James Gorman’s years in wealth management. The results highlighted the ability of Morgan Stanley’s wealth management business, which has been a driver of the bank’s growth in recent years, to add new client assets on a large scale.

The division drew in billions of dollars more than investors were expecting in the quarter. Net new assets in wealth were around $95bn, well ahead of expectations for $62bn. Morgan Stanley has set a long-term goal of amassing more than $10tn in client assets.

The bank’s stock was up more than 4 per cent at around midday in New York. 

Pick downplayed recent reports that Morgan Stanley was being probed by multiple US regulators over how its wealth management division handles potentially risky clients, saying this quarter’s results in wealth management “speak for themselves”.

“We’ve been focused on our client onboarding and monitoring processes for a good while,” Pick said. “We have ongoing communications with our regulators, as all the large banks do.”


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