Morgan Stanley beat first-quarter profit estimates on Friday, helped by record equity trading and strong wealth management results, while its CEO expressed more optimism about dealmaking than his counterparts.
The investment bank reported record equity trading revenue, with a 45% jump from a year earlier, reflecting increases across businesses and regions, particularly in Asia, with its biggest gains in prime brokerage and derivatives.
As uncertainty over sweeping U.S. tariffs roiled markets, some transactions in Morgan Stanley's deal pipeline were paused, CEO Ted Pick told analysts. Still, companies have not given up on them, he said.
"We are still, I will call it 'cautiously optimistic' that we won’t go into recession," Pick said. CFO Sharon Yeshaya added that the bank's pipeline of potential transactions remains strong and has not been reduced.
Corporations may look at potential tax cuts and deregulation and decide to proceed with deals even as volatility rises, Pick said.
The bank earned $4.3 billion, or $2.60 per share, in the three months ended March 31. That compares with a profit of $3.4 billion, or $2.02 per share, a year ago. Analysts expected earnings per share of $2.20, according to estimates compiled by LSEG.
Shares were down 0.8% in midday trading.
Morgan Stanley's investment banking revenue rose 8% from a year earlier, bolstered by higher advisory and fixed income underwriting revenue.
GLOBAL SELLOFF
U.S. President Donald Trump's decision to impose heavy tariffs and the launch of China's generative AI model, DeepSeek, triggered a broad selloff in global markets. Potential for a recession and uncertainty over the Federal Reserve's interest-rate trajectory have kept investors on edge.
Equity trading revenue rose as investors rebalanced their portfolios, boosting volumes, mainly in technology and industrial stocks.
Fixed income trading revenue increased, as renewed concerns about stagflation due to tariffs led investors to hedge aggressively and change the types of bonds they held, and over what periods.
Wall Street ended a turbulent week with solid gains on Friday, with the Dow adding more than 1.5%, the S&P 500 rising 1.8% and the Nasdaq climbing 2%.
A rebound in Asia helped lift global M&A volumes in the first quarter, but U.S. activity — a key revenue driver for firms such as Morgan Stanley — slumped 13% amid growing uncertainty, according to Dealogic data.
Equity underwriting revenues fell as issuers and investors considered market uncertainty.
Bankers and analysts warn the prolonged trade war, disappointing IPO debuts and weak follow-through on major deals could dampen investor sentiment and advisory pipelines in the second quarter.
Stable markets support deal activity by giving buyers and sellers more confidence around valuations, reducing execution risk and encouraging companies to move ahead with transactions.
Morgan Stanley ranked fourth globally in investment banking fees in the first quarter, according to Dealogic data.
The bank advised on several big transactions in the quarter, including Walgreens' $24 billion take-private deal with Sycamore Partners. It also served as lead underwriter for AI cloud firm CoreWeave's $1.5 billion U.S. initial public offering.
Morgan Stanley's Institutional Securities business, which houses investment banking and trading, reported revenue of $9 billion compared with $7 billion a year earlier.
PROFIT FROM X LOAN SALE
Morgan Stanley booked a profit from the sale in the first quarter of the loan that financed the 2022 acquisition of social media platform X, according to two sources with knowledge of the matter.
The bank led the syndicate of lenders that included Bank of America, Barclays, BNP Paribas, MUFG, Mizuho and Societe Generale that kept the $13 billion in loans on their balance sheets for more than two years.
The profit was booked as other revenue in the bank's Institutional Securities division, which reached $692 million, more than doubled the $242 million in revenue from a year ago.
