By Tatiana Bautzer and Manya Saini
(Reuters) -Morgan Stanley’s second-quarter profit beat expectations on Tuesday, driven by a surge in investment banking that was offset by muted growth in wealth management.
Shares in the bank were last up 1.4% in morning trading, reversing course from the premarket.
Revenue growth in wealth management slowed to 2% in the second quarter, compared with a 16% jump a year earlier. Net new assets came in at $36.4 billion, below last year’s $89.5 billion. The unit’s revenue of $6.79 billion was slightly shy of Wall Street expectations, according to LSEG data.
Institutional securities revenue grew 23% in the quarter to $7 billion as investment banking revenue soared 51%.
The investment-banking business is in the “early innings of recovery,” with broad-based growth across sectors and regions, Chief Financial Officer Sharon Yeshaya told Reuters.
“Investment banking pipelines are healthy and diverse, dialogs are active, and markets are open,” she later told analysts on a conference call.
In wealth, growth in net new assets can be uneven, Yeshaya added, and was affected by higher client tax payments. Still, annual growth remained in the company’s expected range of 5% to 7%.
The results reflected an “overall solid quarter,” wrote analysts led by Keith Horowitz at Citigroup in a note to clients.
“The stock was priced with a relatively high bar heading into the print … we remain highly confident in the wealth management story here,” he wrote, noting that growth in net new assets can be uneven.
The bank’s wealth business flourished under former CEO James Gorman, generating more stable revenue than more volatile market-sensitive businesses such as investment banking and trading. It aims to manage $10 trillion in client assets.
The bank’s net income rose to $3.1 billion, or $1.82 per share, in the three months ended June 30, compared with $2.2 billion, or $1.24 per share, a year earlier. Analysts on average had expected $1.65, according to LSEG.
Morgan Stanley’s quarterly total revenue of $15.02 billion also handily surpassed Wall Street expectations and the bank announced a 7.5-cent rise in its quarterly dividend to $0.925 per share.
INVESTMENT BANKING REVIVAL
An improving economic outlook, expectations of U.S. interest rate cuts and surging equity markets have spurred buyouts, debt sales and stock offerings after a nearly two-year dry spell for Wall Street.
Morgan Stanley’s investment banking revenue surged 51% to $1.62 billion in the second quarter.
“The firm delivered another strong quarter in an improving capital markets environment,” said CEO Ted Pick in a statement.
Equity underwriting revenue jumped 56% to $352 million, driven by a rebound in initial public offerings and private stock sales, while fixed income underwriting surged 71% to $675 million. “We saw fast growth in non-investment grade issues”, Yeshaya said.
Advisory revenues also climbed 30% to $592 million on higher completed deals.
Goldman Sachs, JPMorgan Chase and Citi also reported robust investment banking revenue.
Morgan Stanley’s equity and bond trading desks also outperformed expectations in the quarter. Equity net revenue climbed 18% from a year ago, while fixed income net revenues increased 16%. The equities results echoed gains across Wall Street.
The institutional securities unit reported revenues of $7 billion in the second quarter, up from $5.7 billion a year earlier.
(Reporting by Manya Saini in Bengaluru and Tatiana Bautzer in New York; editing by Lananh Nguyen, Devika Syamnath and Rod Nickel)