By Tatiana Bautzer and Manya Saini
(Reuters) -Morgan Stanley's first-quarter profit beat estimates on Tuesday, fueled by a resurgence in investment banking and growth in wealth management, sending shares up 3.7%.
Investment banking revenue climbed 16% from a year earlier. Fixed-income underwriting did well for a second quarter in row, driven by higher bond issuance. The Wall Street giant's wealth and investment management divisions also benefited from surging client assets.
"It was an excellent quarter all around," Chris Kotowski, an analyst at Oppenheimer, wrote in a note. The bank achieved a "near-perfect print" like rival Goldman Sachs did on Monday, Kotowski added.
Morgan Stanley reported profit of $2.02 per share, sailing past analysts' average estimate of $1.66, according to LSEG data. Total revenue rose to $15.14 billion compared with $14.5 billion a year earlier.
"We saw building momentum in investment banking, both in our M&A and underwriting pipelines across corporate and financial sponsor clients," CEO Ted Pick told investors on Tuesday. He expects a "multi-year M&A cycle" to begin now and last 3 to 5 years.
Geopolitical risks may even create incentive for more deals, he said, adding that some companies will need to shift their international footprint partly because of the disruption two major conflicts are creating on supply chains.
"The fact that the U.S. economy continues to grow, that China is weaker, the parts of Europe are weaker highlights the fact that people want to get even more exposure to the U.S.", the CEO told investors. He also cited the need of financial sponsors to make deals, sell private companies and return money to investors.
Surging equity markets and high-profile initial public offerings (IPOs) are also helping to fuel more activity, CFO Sharon Yeshaya told Reuters in an interview.
"The IPOs that have come to market have done well, and that is positive, it helps the advisory business," she said.
Goldman Sachs impressed markets on Monday with a 28% rise in profit due to more fees in leading large deals and also good results in trading. In their earnings last week, JPMorgan Chase (NYSE:JPM) and Citigroup cited rising activity, particularly in debt and equity capital markets.
Total revenue for Morgan Stanley's institutional securities division, which houses investment banking, equities and fixed income, climbed to $7 billion from $6.8 billion a year earlier. Fixed income trading revenue slid 4%, while equities rose 4%.
WEALTH CLIENTS PROBE
Morgan Stanley has built its wealth business into a powerhouse that generates more stable revenue and helps smooth out revenue from more volatile businesses such as trading and investment banking.
"We have strong backlogs and momentum in every part of the firm," CEO Pick said after his first quarter at the helm. "While the pipelines are healthy, there remains a backdrop of economic and geopolitical uncertainty."
New assets climbed to $95 billion, with around half of those coming from family offices. Wealth management revenue rose to $6.9 billion from $6.6 billion a year ago.
The unit is also reportedly facing higher regulatory scrutiny, with multiple U.S. regulators probing whether Morgan Stanley is vetting its clients and knows the origin of their wealth. In an indirect reference to the probe, Pick said on the investor call the client onboarding "is not a new matter." "We've been focused on our client onboarding and monitoring processes for a good while. We have ongoing communications with our regulators as all the large banks do."
CFO Sharon Yeshaya, answering a direct question from an analyst, said the probe did not result in any strategic changes in the wealth business and that the international portion of wealth management is small.
Investment management revenue rose to $1.4 billion from $1.3 billion a year ago.
The bank's asset management unit is aiming to double its private credit portfolio to $50 billion in the medium term, Reuters reported in January, as it gathers funds from large investors to loan out to companies.