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Morgan Stanley Sees Big Gains in Wealth, Investment Banking: Q2 Earnings

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Morgan Stanley bankers cashed in on last quarter’s hectic period for dealmaking, helping the firm post its second-most profitable quarter on record and weather a steep decline in trading.

Investment banking hauled in $2.38 billion in revenue, according to a statement Thursday, vaulting past analysts’ estimates of $2.08 billion. Fixed-income trading revenue tumbled 45% from last year’s pandemic-driven surge.

Morgan Stanley’s results echo an investment-banking bonanza reported by rivals including JPMorgan Chase & Co. and Goldman Sachs Group Inc. earlier this week.

The firms capitalized as corporations looking for merger-and-acquisition opportunities sought out advice from Wall Street. Investment banking has been a wild card for Morgan Stanley’s earnings, a contrast to the steady growth engine of the firm’s wealth-management operation.

“We had another strong quarter and we are firing on all cylinders,” Chief Financial Officer Sharon Yeshaya said in an interview. “The fixed-income decline was in line with peers, investment-banking pipelines are strong. We had record revenue in wealth management” and a profit margin of almost 28%.

Morgan Stanley was little changed at $92.38 at 9:51 a.m. in New York trading. The stock has surged 35% this year as the bank doubled its quarterly dividend and announced as much as $12 billion in stock buybacks after comfortably clearing the Federal Reserve’s annual stress tests.

Gorman’s Plans

Chief Executive Officer James Gorman unveiled his biggest leadership shakeup in more than a decade during the second quarter, positioning four men as his most likely successors.

Prominent among them were Ted Pick, the architect of Morgan Stanley’s trading revival in recent years, and Andy Saperstein, who built the company into a wealth-management powerhouse. Pick and Saperstein were tapped as co-presidents.

Yeshaya on Thursday will make her debut presentation to Wall Street analysts on the firm’s performance and outlook.

The company said net income in the second quarter reached $3.48 billion, the second-best on record, after the $4 billion notched in the first quarter.

Within the investment-banking division, advisory-fee revenue jumped 44% and equity underwriting climbed 22% to $1.07 billion.

Several banks have raced to announce pay hikes for junior bankers to prevent defections and attract talent. But Morgan Stanley and Goldman Sachs have so far steered clear of extending such perks to their youngest hires.

Trading revenue industrywide has fallen from the elevated levels seen last year, and Morgan Stanley didn’t escape that fate. Its trading desk posted $1.68 billion in fixed-income revenue, down from $3.04 billion a year earlier and below the $1.91 billion analysts were expecting.

But the New York-based firm regained its top position in equity trading after ceding the crown to Goldman Sachs in the first quarter, when Morgan Stanley got burned by its ties to Archegos Capital Management.

Wealth Management

Wealth management churned out $6.09 billion in revenue. Gorman has been vocal about his goal of managing about $10 trillion across the wealth and asset-management business, compared with $6 trillion the firm managed at the end of June.

Results were bolstered by a $10 billion increase in lending to wealthy clients and $34 billion in fee-based inflows for the three-month period.

Morgan Stanley is turning to the business of managing money for wealthy individuals and clients for an increasing share of its total revenue, a trend highlighted by last year’s deals to purchase Eaton Vance and E*Trade Financial Corp.

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