Morgan Stanley profits rise on wave of mergers and acquisitions, advice to the wealthy

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Morgan Stanley’s logo is seen on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., August 3, 2021. REUTERS/Andrew Kelly

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Jan 19 (Reuters) – Morgan Stanley (MS.N) beat quarterly profit forecasts on Wednesday by capitalizing on a trading boom and taking in hefty fees on asset management for wealthy clients, pushing shares higher from the Wall Street investment bank by 5%.

Full-year earnings and revenue were a record for the bank, which advised on some of the world’s biggest mergers during the year. Net income jumped 37% to $15 billion and revenue jumped 23% to nearly $60 billion.

Morgan Stanley’s results capped a mixed earnings season for the nation’s biggest banks which benefited from the wave of mergers and acquisitions but were held back by weak trading and rising spending, which inflated as that they were spending a lot to retain key personnel in a race for talent.

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In 2021, Wall Street’s investment banking giants advised several major business combinations, initial public offerings (IPOs) and helped secure deals involving special purpose acquisition companies.

Morgan Stanley advised 420 deals last year and was ranked third in global investment banking rankings, after bigger rivals Goldman Sachs (GS.N) and JPMorgan Chase (JPM.N), according to data from Dealogic.

The league tables rank financial services firms by the amount of investment banking advisory fees they generate.

M&A volumes are expected to remain robust despite the prospect of increasingly expensive debt, while Main Street lenders are expected to post healthier earnings from consumer lending as interest rates are expected to rise. later this year.

EXCEED EXPECTATIONS

Overall revenue from Institutional Securities, which houses Morgan Stanley’s investment banking and trading units, fell slightly to $6.7 billion, largely due to weak trading.

Trading revenues fell 26%. Equity trading revenue rose 13%, but the gains were wiped out by fixed income trading revenue which fell 31% to $1.23 billion. However, investment banking revenue rose 6% to $2.43 billion in the quarter.

Equity underwriting revenue of $853 million was lower than a year ago, even though Morgan Stanley advised on some of the biggest IPOs, including Amazon-backed electric vehicle maker Rivian Automotive Inc ( RIVN.O).

Its wealth management unit also had a strong quarter with a 10% increase in revenue to $6.25 billion, generating record annual profit.

However, the investment bank saw its compensation spend rise 18% to $24.6 billion, largely due to the acquisition of fund manager Eaton Vance.

In the quarter ended Dec. 31, earnings were $3.59 billion, or $2.01 per share and beat market expectations of $1.93 per share, despite the hit to trading.

Revenue reached $14.52 billion, compared to $13.59 billion the previous year.

Return on tangible equity, a closely watched measure of profitability that measures how well a bank uses its capital to generate profits, rose to 19.8%. This figure was well above the bank’s two-year target of between 14% and 16%.

Unlike bigger rivals such as JPMorgan and Bank of America (BAC.N), Morgan Stanley and its counterpart Goldman Sachs lack large consumer loan units, which has limited their exposure to pandemic-related defaults. and allowed them to focus on their two strengths. in investment banking and trading.

Chief Executive James Gorman, however, took steps to insulate the bank from its reliance on trading and engineered two major back-to-back acquisitions – Eaton Vance and E*Trade – to bolster its ability to win clients in its wealth management and brokerage weapons.

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Reporting by Sohini Podder and Manya Saini in Bengaluru and Matt Scuffham in New York; additional reporting by Mehnaz Yasmin; Written by Anirban Sen; Editing by Arun Koyyur

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